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Burk High Low Lows

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The column under the date 10/13/2026 has a letter that represents the movement in 2026 earnings estimates since the most recent print (8/14/2026). “U” means 2026 estimates are UP in the last 60 days. “D” means 2026 estimates are DOWN in the last 60 days. “S” means 2026 estimates have remained the SAME in the last 60 days. The column entitled “1yr Target Est” is the Wall Street consensus 12 month price target for each stock.

What this table is telling us is that estimates are DOWN. More estimates went DOWN for 2026 in the past 60 days than came UP. The Up:Down ratio was 14:16.

The cumulative 2026 earnings power of these 30 stocks was revised UP by +0.01% in the past 60 days. 2027 estimates went DOWN by -2.16%.

The post (Equal Weight) Biotech Earnings Estimates/Revisions appeared first on Hedge Fund Tips.

The column under the date 10/13/2026 has a letter that represents the movement in 2026 earnings estimates since the most recent print (8/14/2026). “U” means 2026 estimates are UP in the last 60 days. “D” means 2026 estimates are DOWN in the last 60 days. “S” means 2026 estimates have remained the SAME in the last 60 days. The column entitled “1yr Target Est” is the Wall Street consensus 12 month price target for each stock.

What this table is telling us is that estimates are UP. More estimates came UP for 2026 in the past 60 days than went DOWN. The Up:Down ratio was 15:13. The rest remained the same.

The cumulative 2026 earnings power of these 30 stocks was revised DOWN by -3.41% in the past 60 days. 2027 estimates went DOWN by -0.48%.

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OUTLOOK:

SENTIMENT:

POSITIONING:

MOST CROWDED TRADES:

BIGGEST TAIL RISKS:

BANK OF AMERICA COMMENTARY:

The post October 2026 Bank of America Global Fund Manager Survey Results (Summary) appeared first on Hedge Fund Tips.

S&P 100 Stocks Above the 200 Day MA

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S&P 500 Stocks Above 20 EMA

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Nasdaq – Declining Issues TRIX

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S&P Mid-Cap Intermediate-Term Volume Momentum Oscillator

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Article referenced in VideoCast above:

“Luxury Comes in From the Cold” Stock Market (and Sentiment Results)…

Key Takeaways – Episode 364

A detailed summary of this week’s videocast with Tom Hayes, covering the portfolio walkthrough, stock ideas, positioning, and market sentiment.

Executive summary

Tom’s framing for the week: the S&P 500 index, which he calls “the AI ETF,” is near record highs while the market underneath it sits in what he calls a covert bear market. The median S&P 500 stock is down ~18% year to date, 55% of components are below their 200-day moving average, and 75% are below their 50-day. Citadel data show Microsoft, Nvidia, Apple, and Meta added ~300 points to the S&P in the third quarter, more than double the index’s net gain, while the other ~496 stocks collectively cost the index ~150 points. Breadth measures (advance/decline, the percentage of stocks above their moving averages, bullish-percent readings) began inflecting higher in the days before taping, which Tom reads as the early stage of a multi-month period where the index itself stays subdued while the ~490 names outside the AI leaders see some of the biggest gains of the cycle.

At a private talk to a peer group of entrepreneurs in Carmel this week, Tom walked through the underwriting framework behind the portfolio: would he buy the entire company with 100% of his own net worth as the equity; would the board reject a takeover offer at the current price; and buying quality businesses down 50–80% in price after confirming solvency, free cash flow, and debt maturities, concentrated in 8 to 12 positions. He applied that framework live to three current holdings: PayPal, Comstock Resources, and Cooper Standard.

On the portfolio, Tom said he has been buying QXO, Comstock Resources, and Densply Sirona through the week’s selloff, and gave deep updates on Canada Goose and Estée Lauder off their respective reporting. Smaller accounts (minimum $1.5 million) reopen October 15.

“If you could borrow my glasses, that’s all I could say. These are the times where alpha is created, and most people are thinking about survival when they should be thinking about abundance.”

Tom Hayes, on The Opportunity Underneath The Surface

Market sentiment and macro view

A covert bear market

• The median S&P 500 stock is down ~18% year to date even as the index sits near its record high. 55% of components are below their 200-day moving average and 75% are below their 50-day.
• Citadel: Microsoft, Nvidia, Apple, and Meta added ~300 points to the S&P 500 in the third quarter, more than double the index’s net gain, while the other ~496 stocks collectively cost the index ~150 points.
• 51% of Russell 3000 stocks have seen at least a 20% drawdown since June, which Tom calls a bear market in everything but five or 10 stocks.
• Breadth measures (advance/decline on the NYSE, percentage of stocks above their 50- and 200-day moving averages, bullish-percent readings) began turning up in the days before taping, which Tom reads as an early inflection.
• Tom’s base case into year-end: a subdued index alongside one of the biggest rallies of the cycle in the ~490 non-AI-leader names, the mirror image of the last two months.

Rates, the Fed, and bonds

• The odds of an October Fed hike collapsed from 73% to 33% after the latest jobs report; Fed Vice Chair Jefferson signaled the Fed may need more time before its next move, which Tom reads as a move toward a pause.
• The 2-year/10-year curve came within ~26 basis points of inverting before moving back out, which Tom called good news since an inversion would typically signal a recession 12–24 months out.
• The 10-year yield is around 5.3%; Tom remains a buyer, framing it as a locked-in yield against a ~5% S&P earnings yield with volatility and no guarantee, while noting Europe has rising yields without the growth to justify them.
• According to two administration officials cited by the Atlantic, the White House has instructed the Pentagon to prepare potential strike options against Iranian targets that could be carried out before the midterms, tied to lowering gas prices and showing progress in the conflict.
• Historically, stock performance by Congress makeup favors a split Congress regardless of which party holds the presidency; prediction markets and voting already underway will determine the outcome. Every midterm election since 1946 has been followed by positive one-year stock returns.

Rotation: small caps, international, and value

• Small caps relative to the S&P 500 are breaking out of their most well-formed base since 2000, with the Russell 2000 clearing a multi-year consolidation channel.
• MSCI World and emerging markets are each breaking out of roughly 18-year bases, which Tom ties to a long rotation cycle: the US has outperformed international markets for the last 10–15 years, and he expects the baton to pass the other way for a similar stretch.
• Stifel’s Barry Banister: large-cap growth outperformed value by almost 8% a year in the 10 years to December 2024, then topped and rolled over, a pattern Tom compares to 1947, 1960, and February 2000, each followed by a multi-year value-over-growth cycle.
• From 1927 to 2025, value has outperformed growth by a ~2.7-percentage-point annualized margin; $10,000 compounded at those respective rates for 30 years grows to ~$371,000 in value versus ~$179,000 in growth.
• Short interest in the Russell 2000 is elevated enough that Tom expects a sharp short-covering rally once yields roll over.

The underwriting framework behind the portfolio

• From this week’s Carmel talk: filter one is whether Tom would buy 100% of the company with 100% of his own net worth as the equity slug; if that deal wouldn’t be done, the portfolio won’t buy a single share.
• Filter two is whether the board would reject a takeover offer at the stock’s current price, the standard he applies to PayPal, whose board rejected a reported $60.50-a-share approach from Stripe.
• The portfolio looks to buy quality businesses down 50–80% in price, which requires first assessing solvency risk: the balance sheet, free cash flow relative to interest payments, and debt maturity schedule.
• Management matters: Tom avoids “hiring the arsonist to put out the fire” and looks for a new CEO with a turnaround track record when a decline was self-inflicted rather than sector- or macro-driven.
• The portfolio holds roughly 8 to 12 positions, citing academic research that odds of market outperformance fall sharply above ~15 holdings, and emphasizes temperament and patience over IQ as the main edge.

AI capex, semiconductors, and credit signals

• Tom is not currently a buyer of memory or semiconductor stocks, citing a recurring four-year semiconductor cycle of shortage, overcapacity, and earnings collapse, and says Micron trades at a multiple of “peak-that-may-never-repeat” earnings.
• Seagate and Western Digital fell 10% and 7% respectively after Toshiba announced plans to invest $380 million to double HDD capacity for AI data centers, a sign of looming oversupply in storage.
• Flagged insider selling in Nvidia and Micron alongside buybacks that are absorbing the stock insiders are selling, after both companies were not buying back stock when their shares were much cheaper.
• On Michael Burry’s public AI shorts: called him “100% correct” on vendor financing and pockets of froth, but likely several years early on the broader thesis, which he places in roughly the fifth inning.
• Cited hyperscalers’ “other income” lines, which include mark-to-market gains on private AI investments, as a risk if the cash-flow assumptions behind that AI capex buildout don’t hold.

Long ideas — turnaround names bought into this week’s selloff

Names Tom walked through as current portfolio holdings or ideas he actively endorsed on the episode. Prices and levels are as cited on air.

Avoid, trim, or pass

Tom remains cautious on crowded or speculative names but did not call new shorts this week. Where a name is listed as a pass, he is declining to allocate capital rather than calling a short.

Portfolio moves

• QXO. The portfolio has been buying all week as the stock sold off with the broader rates-driven move against housing-exposed names.
• Comstock Resources and Densply Sirona. Also bought heavily this week (“hoovering”) into the same selloff.
• New accounts. The quarterly opening for smaller accounts (minimum $1.5 million) begins October 15; larger accounts ($5 million and up) can access the strategy anytime.

Media appearances

Fox Business — Mornings with Fox Business, with Taylor Riggs and Mark Tepper, Thursday (full 3 hours)

• On bonds: called the portfolio a buyer of the 10-year, framing its ~5.29% locked-in yield against the S&P’s ~5% earnings yield (which carries volatility and no guarantee), and called Treasuries “the cleanest shirt in the dirty basket” versus Europe, where yields are rising without the growth to justify them.
• On Constellation Energy’s 20-year nuclear power deal with Amazon: called it a step toward clean energy and a positive for both companies, tying it to data center demand Tom expects to grow 170% by 2030 with natural gas supplying 69% of the near-term buildout.
• On the $200 billion South Korean investment plan: highlighted the $22 billion Encinal, Texas LNG facility tied to Comstock Resources (Jerry Jones owns 71% of the stock) and the $50 billion, ~807-mile Alaska pipeline to export LNG to Asia, calling it a major source of job creation and construction activity.
• On inflation: cited core PCE deflator data showing a weak negative impulse, with the trimmed-mean PCE deflator’s most recent reading below the Fed’s 2% target, arguing current inflation concern is overblown relative to the data.
• On AST SpaceMobile, which rallied on takeover speculation after being cut roughly in half from over $100: warned not to confuse a good theme with good valuation, calling the takeover chatter a sign management is anticipating a buyout at a much lower price than the summer highs.
• On Michael Burry’s public AI shorts: said he’s “100% correct” about vendor financing and pockets of froth that need to be worked out, but likely several years early on the broader thesis, noting the semiconductor index saw three separate 50% corrections between 1995 and 2000 before its eventual bull run, and placed the current AI cycle in roughly the fifth inning.
• On McCormick: shares fell despite sales growing 17% to ~$2 billion, as profits fell 57% on higher costs and deal expenses; called the broader consumer-staples group the most out of favor in 27 years and a source of 5–6% dividend yields with potential capital appreciation once the bond selloff exhausts itself.

• Reuters — quoted in coverage this week.

What to watch

Opinion only for Informational/Educational purposes only. Not investment Advice. Not a solicitation to buy or sell securities. Read full terms at HedgeFundTips.com under Terms link.

The post Hedge Fund Tips with Tom Hayes – VideoCast – Episode 364 appeared first on Hedge Fund Tips.

Article referenced in Podcast above:

“Luxury Comes in From the Cold” Stock Market (and Sentiment Results)…

Key Takeaways – Episode 364

A detailed summary of this week’s videocast with Tom Hayes, covering the portfolio walkthrough, stock ideas, positioning, and market sentiment.

Executive summary

Tom’s framing for the week: the S&P 500 index, which he calls “the AI ETF,” is near record highs while the market underneath it sits in what he calls a covert bear market. The median S&P 500 stock is down ~18% year to date, 55% of components are below their 200-day moving average, and 75% are below their 50-day. Citadel data show Microsoft, Nvidia, Apple, and Meta added ~300 points to the S&P in the third quarter, more than double the index’s net gain, while the other ~496 stocks collectively cost the index ~150 points. Breadth measures (advance/decline, the percentage of stocks above their moving averages, bullish-percent readings) began inflecting higher in the days before taping, which Tom reads as the early stage of a multi-month period where the index itself stays subdued while the ~490 names outside the AI leaders see some of the biggest gains of the cycle.

At a private talk to a peer group of entrepreneurs in Carmel this week, Tom walked through the underwriting framework behind the portfolio: would he buy the entire company with 100% of his own net worth as the equity; would the board reject a takeover offer at the current price; and buying quality businesses down 50–80% in price after confirming solvency, free cash flow, and debt maturities, concentrated in 8 to 12 positions. He applied that framework live to three current holdings: PayPal, Comstock Resources, and Cooper Standard.

On the portfolio, Tom said he has been buying QXO, Comstock Resources, and Densply Sirona through the week’s selloff, and gave deep updates on Canada Goose and Estée Lauder off their respective reporting. Smaller accounts (minimum $1.5 million) reopen October 15.

“If you could borrow my glasses, that’s all I could say. These are the times where alpha is created, and most people are thinking about survival when they should be thinking about abundance.”

Tom Hayes, on The Opportunity Underneath The Surface

Market sentiment and macro view

A covert bear market

• The median S&P 500 stock is down ~18% year to date even as the index sits near its record high. 55% of components are below their 200-day moving average and 75% are below their 50-day.
• Citadel: Microsoft, Nvidia, Apple, and Meta added ~300 points to the S&P 500 in the third quarter, more than double the index’s net gain, while the other ~496 stocks collectively cost the index ~150 points.
• 51% of Russell 3000 stocks have seen at least a 20% drawdown since June, which Tom calls a bear market in everything but five or 10 stocks.
• Breadth measures (advance/decline on the NYSE, percentage of stocks above their 50- and 200-day moving averages, bullish-percent readings) began turning up in the days before taping, which Tom reads as an early inflection.
• Tom’s base case into year-end: a subdued index alongside one of the biggest rallies of the cycle in the ~490 non-AI-leader names, the mirror image of the last two months.

Rates, the Fed, and bonds

• The odds of an October Fed hike collapsed from 73% to 33% after the latest jobs report; Fed Vice Chair Jefferson signaled the Fed may need more time before its next move, which Tom reads as a move toward a pause.
• The 2-year/10-year curve came within ~26 basis points of inverting before moving back out, which Tom called good news since an inversion would typically signal a recession 12–24 months out.
• The 10-year yield is around 5.3%; Tom remains a buyer, framing it as a locked-in yield against a ~5% S&P earnings yield with volatility and no guarantee, while noting Europe has rising yields without the growth to justify them.
• According to two administration officials cited by the Atlantic, the White House has instructed the Pentagon to prepare potential strike options against Iranian targets that could be carried out before the midterms, tied to lowering gas prices and showing progress in the conflict.
• Historically, stock performance by Congress makeup favors a split Congress regardless of which party holds the presidency; prediction markets and voting already underway will determine the outcome. Every midterm election since 1946 has been followed by positive one-year stock returns.

Rotation: small caps, international, and value

• Small caps relative to the S&P 500 are breaking out of their most well-formed base since 2000, with the Russell 2000 clearing a multi-year consolidation channel.
• MSCI World and emerging markets are each breaking out of roughly 18-year bases, which Tom ties to a long rotation cycle: the US has outperformed international markets for the last 10–15 years, and he expects the baton to pass the other way for a similar stretch.
• Stifel’s Barry Banister: large-cap growth outperformed value by almost 8% a year in the 10 years to December 2024, then topped and rolled over, a pattern Tom compares to 1947, 1960, and February 2000, each followed by a multi-year value-over-growth cycle.
• From 1927 to 2025, value has outperformed growth by a ~2.7-percentage-point annualized margin; $10,000 compounded at those respective rates for 30 years grows to ~$371,000 in value versus ~$179,000 in growth.
• Short interest in the Russell 2000 is elevated enough that Tom expects a sharp short-covering rally once yields roll over.

The underwriting framework behind the portfolio

• From this week’s Carmel talk: filter one is whether Tom would buy 100% of the company with 100% of his own net worth as the equity slug; if that deal wouldn’t be done, the portfolio won’t buy a single share.
• Filter two is whether the board would reject a takeover offer at the stock’s current price, the standard he applies to PayPal, whose board rejected a reported $60.50-a-share approach from Stripe.
• The portfolio looks to buy quality businesses down 50–80% in price, which requires first assessing solvency risk: the balance sheet, free cash flow relative to interest payments, and debt maturity schedule.
• Management matters: Tom avoids “hiring the arsonist to put out the fire” and looks for a new CEO with a turnaround track record when a decline was self-inflicted rather than sector- or macro-driven.
• The portfolio holds roughly 8 to 12 positions, citing academic research that odds of market outperformance fall sharply above ~15 holdings, and emphasizes temperament and patience over IQ as the main edge.

AI capex, semiconductors, and credit signals

• Tom is not currently a buyer of memory or semiconductor stocks, citing a recurring four-year semiconductor cycle of shortage, overcapacity, and earnings collapse, and says Micron trades at a multiple of “peak-that-may-never-repeat” earnings.
• Seagate and Western Digital fell 10% and 7% respectively after Toshiba announced plans to invest $380 million to double HDD capacity for AI data centers, a sign of looming oversupply in storage.
• Flagged insider selling in Nvidia and Micron alongside buybacks that are absorbing the stock insiders are selling, after both companies were not buying back stock when their shares were much cheaper.
• On Michael Burry’s public AI shorts: called him “100% correct” on vendor financing and pockets of froth, but likely several years early on the broader thesis, which he places in roughly the fifth inning.
• Cited hyperscalers’ “other income” lines, which include mark-to-market gains on private AI investments, as a risk if the cash-flow assumptions behind that AI capex buildout don’t hold.

Long ideas — turnaround names bought into this week’s selloff

Names Tom walked through as current portfolio holdings or ideas he actively endorsed on the episode. Prices and levels are as cited on air.

Avoid, trim, or pass

Tom remains cautious on crowded or speculative names but did not call new shorts this week. Where a name is listed as a pass, he is declining to allocate capital rather than calling a short.

Portfolio moves

• QXO. The portfolio has been buying all week as the stock sold off with the broader rates-driven move against housing-exposed names.
• Comstock Resources and Densply Sirona. Also bought heavily this week (“hoovering”) into the same selloff.
• New accounts. The quarterly opening for smaller accounts (minimum $1.5 million) begins October 15; larger accounts ($5 million and up) can access the strategy anytime.

Media appearances

Fox Business — Mornings with Fox Business, with Taylor Riggs and Mark Tepper, Thursday (full 3 hours)

• On bonds: called the portfolio a buyer of the 10-year, framing its ~5.29% locked-in yield against the S&P’s ~5% earnings yield (which carries volatility and no guarantee), and called Treasuries “the cleanest shirt in the dirty basket” versus Europe, where yields are rising without the growth to justify them.
• On Constellation Energy’s 20-year nuclear power deal with Amazon: called it a step toward clean energy and a positive for both companies, tying it to data center demand Tom expects to grow 170% by 2030 with natural gas supplying 69% of the near-term buildout.
• On the $200 billion South Korean investment plan: highlighted the $22 billion Encinal, Texas LNG facility tied to Comstock Resources (Jerry Jones owns 71% of the stock) and the $50 billion, ~807-mile Alaska pipeline to export LNG to Asia, calling it a major source of job creation and construction activity.
• On inflation: cited core PCE deflator data showing a weak negative impulse, with the trimmed-mean PCE deflator’s most recent reading below the Fed’s 2% target, arguing current inflation concern is overblown relative to the data.
• On AST SpaceMobile, which rallied on takeover speculation after being cut roughly in half from over $100: warned not to confuse a good theme with good valuation, calling the takeover chatter a sign management is anticipating a buyout at a much lower price than the summer highs.
• On Michael Burry’s public AI shorts: said he’s “100% correct” about vendor financing and pockets of froth that need to be worked out, but likely several years early on the broader thesis, noting the semiconductor index saw three separate 50% corrections between 1995 and 2000 before its eventual bull run, and placed the current AI cycle in roughly the fifth inning.
• On McCormick: shares fell despite sales growing 17% to ~$2 billion, as profits fell 57% on higher costs and deal expenses; called the broader consumer-staples group the most out of favor in 27 years and a source of 5–6% dividend yields with potential capital appreciation once the bond selloff exhausts itself.

• Reuters — quoted in coverage this week.

What to watch

Opinion only for Informational/Educational purposes only. Not investment Advice. Not a solicitation to buy or sell securities. Read full terms at HedgeFundTips.com under Terms link.

The post Hedge Fund Tips with Tom Hayes – Podcast – Episode 364 appeared first on Hedge Fund Tips.

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Bullish Percent Consumer Discretionary

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Bullish Percent Industrials

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The topics of my presentations will be:

• Post-Election-Year Pop – and How to Play It: 2027 market outlook, including why to expect a post-election-year pop and three top stock picks (11:00 AM – 11:25 AM)

• “Turnaround Tom’s” Investment Framework: A workshop on how to buy good businesses at great prices for attractive returns over time (1:30 PM – 2:15 PM)

Get Your Tickets Here

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NYSE High Low Index

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On Thursday, I joined Taylor Riggs on Fox Business’ Mornings with Fox Business alongside Mark Tepper to discuss markets, the economy, outlook, bonds, inflation, AI, energy, GLP-1s, staples, the consumer, VF Corp ($VFC), Disney ($DIS), McCormick ($MKC), and a lot more. Thanks to Taylor and Alexa Spilotras for having me on:

Canada Goose Update

For newer readers, here’s a quick overview of the key drivers behind our thesis on Canada Goose, an iconic luxury outerwear brand in the early innings of a DTC-led inflection as it evolves into a year-round lifestyle brand:

Company Overview

• Founded in 1957 as a family-run business specializing in high-performance, Canadian-made down jackets and parkas. Evolved into an iconic premium luxury brand.
• Chairman and CEO Dani Reiss (grandson of the founder). Took over in 2001 at age 27 when annual sales were ~$2.2M; FY2026 sales ~$1.53B (>600x growth in 25 years). Holds ~21% of shares outstanding. Repurchased another $1.06M worth of shares on 9/9/2026.
• 92 permanent retail stores globally as of Q1 FY27 (opened four net new in Q1, including the new Vancouver flagship; nine net new in FY2026, including conversions).
• Geographic revenue mix: Greater China ~31.6%, United States ~25.1%, Canada ~17.9%, EMEA ~17.1%, APAC ex-China ~8.3%.

What Happened

• Went from flashy, high-growth story (trading >70x earnings at peak) to a value play (down nearly 90% from 2018 highs).
• Sold off amid luxury sector weakness, slowing China consumer, discretionary pullback, and brand-specific challenges. Growth decelerated sharply from 40%+ annual rates to a trough of +1.1% in FY2025.
• Lost operating leverage: operating margins halved from the mid-20% historical range to a low of ~9.7% in FY2026. Rising SG&A from retail expansion, increased marketing expenses, and one-time items pressured profitability.

Inflection to Growth

• Q1 FY27: total revenue +10.3% Y/Y to $118.9M (+8.6% cc), ~$10M ahead of consensus, led by wholesale (+66.5%) and DTC (+8.6%).
• DTC comp declined 3.2% on softer store traffic, partially offset by double-digit e-commerce growth across all regions.
• By geography in Q1 (cc): Asia Pacific +34.6% (Greater China +39.6%), Canada +10.7%, US -20.4%, EMEA -7.4%.
• Full-year FY2026: total revenue +13.3% Y/Y to $1,528.2M (+12.4% cc), crossing $1.5B for the first time. Full-year DTC comp growth +8.4%.
• Clear inflection to growth underway after a multi-year slowdown; still early innings.

DTC Expansion

• Strategic pivot from wholesale to high-margin DTC (retail + e-commerce) for brand control and profitability. DTC commands mid-70% gross margins vs. mid-to-high 40% for wholesale.
• DTC mix up from ~29% of revenue in FY2017 to ~76% in FY2026 ($1,157.4M of $1,528.2M).
• Long-term target: ~80% by FY2028. Expected to sustain gross margins consistently north of 70%.
• Plan to increase permanent store count to ~130 locations by end of FY2028 (92 as of Q1 FY27).

Wholesale Reset

• The three-year wholesale channel reset toward brand-aligned partners and healthier inventory positions is now complete, and the channel has returned to growth (+11.7% reported / +8.5% cc for FY2026 to $291.2M) after three straight years of declines (-6% in FY23, -16% / -19% cc in FY24, and -16.5% / -18% cc in FY25).
• Q1 FY27 wholesale revenue +66.5% Y/Y to $29.8M (+65.4% cc) on a larger planned order book, stronger in-season reorders, and shipment timing, with strength in Hainan Island and Korea.
• Wholesale is now a healthy contributor rather than a drag, with another year of growth expected in FY27 supported by encouraging Fall/Winter ’26 order book indications.

365-Day Relevance

• Transforming from a winter-only, one-time $1,000+ parka brand to an all-season, 365-day relevant luxury lifestyle brand.
• Expanding beyond heavy down-filled items (historically ~95% of business <15 years ago, now ~50%). Apparel led growth for the full year FY26, while down-filled outerwear remained the majority of revenue and a meaningful contributor to growth.
• In Q1 FY27, apparel, rainwear, and windwear reached ~40% of revenue, now matching the company’s entire Q1 FY19 revenue.
• Launched largest-ever Spring/Summer ’26 mainline collection, brought to market earlier than prior years to strengthen presence through the shoulder season.
• Introduces lower price points (e.g., $175 T-shirt vs. $1,000+ parka) for more frequent purchases and year-round shopping. Builds repeat frequency and broader appeal to reduce seasonality.
• Both new customer recruitment and repeat customer counts increased Y/Y in FY26, alongside a step up in purchase frequency.

Margin Expansion / Cost Discipline

• FY2026 gross margin essentially flat at 69.7% (vs. 69.9% FY2025).
• Q1 FY27 gross margin 62.4%, up 100 bps Y/Y, on favorable channel and regional mix. Q1 runs well below the full-year rate given seasonal channel mix.
• FY2026 adjusted EBIT $148.0M (9.7% margin) vs. $171.4M (12.7% margin) in FY2025, with the full-year decline driven by three one-time headwinds: a $43.8M arbitration award, a $15M U.S. wholesale bad debt provision, and an $8.4M Q4 store impairment.
• Q1 FY27 adjusted EBIT $(103.8)M, margin (87.3)% vs. (98.7)% a year ago, over 11 points of improvement and the strongest first-quarter margin since fiscal 2020.
• FY27 guidance: revenue to grow low-single digits Y/Y on a constant currency basis; adjusted EBIT margin of 11-12%, representing ~130-230 bps of expansion off the FY26 base.
• Margin drivers: gross margin expansion, more efficient marketing, tight corporate cost control, and the non-recurrence of FY26’s bad debt provision and store impairment. ~75% of revenue and all of the profit lands in the back half. Reiterated at Q1 FY27.
• Tariff watch: US announced 50% duties on a broad range of Canadian goods including apparel on July 20, 2026, set to take effect around August 19. If implemented as proposed with no mitigation, management estimates the FY27 operating margin impact at less than 200 bps. Guide assumes no material impact; management has mitigation options and says it remains on track.
• Marketing efficiency focus: plan to keep reducing marketing as a % of revenue in FY27 without sacrificing comp growth. In Q1 FY27, marketing as a percent of revenue declined 490 bps Y/Y.
• Cost actions: ~17% corporate workforce reduction (March 2024) following ~10% cut (August 2023). ~$25M in annualized savings.

Key Financials + Valuation

• Net debt ~$627.8M at Q1 FY27 (vs. ~$542M a year ago and ~$383M at FY26 year-end), with net debt leverage of 2.1x adjusted EBITDA (vs. 1.8x a year ago).
• Cash ~$206.9M (vs. ~$408M at FY26 year-end).
• Repriced the term loan late in Q1 for a 50 bps reduction in credit spread.
• Inventory $489.9M at Q1 FY27 (+11% Y/Y), turns improving to 1.0x (+11% Y/Y, +25% vs. two years ago), built for an expanded assortment, a larger wholesale order book, and Fall/Winter ’26 production. (FY26 year-end: $386.3M, flat Y/Y, turns 1.2x.)
• Share count reduced ~11.6% over the past five years.
• Forward P/E: ~9.3x vs 5 year average closer to ~19x

Q1 Commentary

Canada Goose kicked off fiscal 2027 by putting points on the board in what has historically been its lowest-stakes quarter of the year. Despite generating only ~7% of full-year revenue last year, Q1 still served as a solid display of execution, with revenue growing +10.3% Y/Y (+8.6% C$) to $118.9M, ahead of the ~$108.8M the Street expected. Both DTC and wholesale contributed to the top-line beat, while adjusted EBIT margin expanded 11.4 points to its strongest first-quarter level since FY2020. The lone soft spot was DTC comp sales, which fell 3.2% as softer store traffic outweighed double-digit e-commerce growth. Even so, management’s expectation for positive DTC comps over the full year remains intact, with the peak holiday season carrying far more weight than the first quarter.

The market, however, has been in no mood to give GOOS the benefit of the doubt. The stock sits nearly 90% below its all-time highs, trading at levels seen only briefly around the Liberation Day lows, as the negative comp landed on top of a tariff overhang that has dominated the conversation since July. That is when the U.S. announced 50% duties on a broad range of Canadian goods, including apparel, which went into effect in August and brought in products that had long been shielded under USMCA.

As the face of Canadian-made luxury apparel, Canada Goose quickly became the poster child for the tariff trade in a shoot-first, ask-questions-later market. The company is certainly exposed, with ~two-thirds of its products made in Canada, including nearly all of its down-filled outerwear. Yet that exposure is far more contained than the headlines suggest, as down-filled outerwear now makes up only ~half of the overall mix, while the U.S. accounts for just ~25% of total sales.

Management estimates the duties will weigh on FY27 operating margin by less than 200 bps, a figure that assumes no mitigation whatsoever. The company has plenty of levers at its disposal to chip away at that number, from improved retail economics and cost savings to pricing, which management is deliberately holding in reserve rather than reaching for as a knee-jerk reaction. Does it add complexity and another layer of noise to management’s plate? Certainly. Is it the thesis-breaker the stock price implies? Absolutely not.

CEO Dani Reiss clearly feels the same way, using the selloff to buy another 100,000 shares on the open market at ~$10.62, a ~$1.06M purchase that brings his stake to ~21.0% of shares outstanding and ~36.3% of voting rights. This is a vote of confidence from a third-generation owner who has grown the family business from ~$2.2M in sales when he took over in 2001 to more than $1.5B today, not a trade built around a tariff headline. When the person with the most information and the most skin in the game is buying in the face of peak pessimism, that is the side we want to be on.

What Reiss is ultimately betting on is the final phase of a turnaround that has been years in the making. The GOOS story has been built in three phases: the DTC transformation that began in FY17, the evolution from a winter-only parka brand into a 365-day luxury lifestyle brand, and finally, converting that progress into EBIT margin expansion. The first two are largely proven at this point, leaving margins as the piece where we believe the stock’s next leg will come from.

The DTC pivot has already delivered exactly what management set out to achieve. Since FY17, the channel has grown from ~29% of revenue to ~75.7% in FY26, with the permanent store fleet expanding from just two locations to 92 today. That shift brought the intended gross margin expansion along with it, lifting gross margin to 69.7% in FY26, just shy of record highs and ~17 points above FY17 levels.

The trade-off, however, was pressure on operating margins as GOOS invested heavily to build out the DTC fleet. Rent, labor, and upper-funnel marketing added to the cost base during the investment and expansion phase, a hit that was compounded when top-line growth slowed from 40%-plus rates to just 1.1% in FY25, leaving a much heavier fixed-cost base spread across stalled revenue. As a result, adjusted EBIT margin slid from a peak of 24.9% in FY19 to a trough of 9.7% in FY26, the lowest in the company’s public history.

That is why SG&A leverage, rather than further gross margin expansion, is the name of the game and the bigger margin opportunity from here. With the heavy lifting on the store buildout now behind the company, the focus shifts to driving more profit from the existing fleet, with new openings becoming more selective and each location held to a 40% four-wall EBIT margin threshold. Store productivity is already improving, with sales per square foot climbing back above management’s C$4,000 benchmark in FY26 for the first time in several years, with plenty of room to work higher as newer stores mature.

Q1 offered the first real evidence of that leverage at work. Normalized for one-time items in both periods, SG&A grew just 6% Y/Y against 10.3% revenue growth, led by a 490 bps decline in marketing as a percentage of revenue. The result was an 11.4-point improvement in adjusted EBIT margin, an encouraging start to a year in which management is guiding to ~130 to 230 bps of expansion, taking margins to 11% to 12%.

The Street, however, has just 11.0% penciled in for FY27 and only 11.3% for FY28, effectively taking the under on any margin recovery beyond this year. Meanwhile, management sees no structural reason margins cannot work back toward historical levels. More likely than not, the two sides will meet somewhere in the middle.

Revenue growth makes that margin recovery a lot easier to achieve, which brings us back to the 3.2% decline in DTC comp sales.

Management was clear that the softness came from lower store traffic rather than weaker demand. The rest of the quarter supports that view, with e-commerce growing double digits across every region while store conversion, basket sizes, and new customer acquisition all improved. Wholesale revenue also jumped 66.5% to $29.8M as partners increased their orders. This pressure on store traffic was certainly not unique to Canada Goose, with luxury retailers across the industry feeling the same pain. Management is responding by stepping up marketing investment heading into peak season to bring more customers back into its stores.

Beyond store traffic, the bigger top-line story is what customers are buying when they are in the stores. Apparel, rainwear, and windwear reached nearly 40% of Q1 revenue, generating as much in a single quarter as the entire company did in the first quarter eight years ago. Non-down products like knitwear, T-shirts, and polos now account for ~50% of unit sales, with down-filled outerwear still growing alongside them, making the expansion additive rather than a drag on the core.

In our view, this remains the most overlooked growth opportunity for Canada Goose, as each new category gives existing customers a reason to come back outside of winter while drawing in new customers who may never have considered a $1,000+ parka. Over time, that creates a more stable, four-season brand that drives sales year-round and gives the business a larger revenue base to leverage its fixed cost structure.

Then there is the China recovery, which is starting to show up in a big way. Greater China, Canada Goose’s #1 market at 31.6% of sales, grew 44.2% in the quarter, helping drive APAC to its sixth straight quarter of double-digit growth. Strength also extended to wholesale partners on Hainan Island and in Korea, pointing to the same rebound in travel retail that Estée Lauder’s results also spoke to.

You would never know any of this from the stock, which trades at just over 9x NTM earnings, compared to a ~26x median since going public and ~17x over the past five years, a period that already reflected a slower growth profile. We don’t expect that disconnect to last much longer, with even a partial recovery from the FY26 margin trough unlocking significant earnings power that has yet to be priced in.

Mr. Market may be bracing for a long, cold winter at Canada Goose, but between the margin inflection now underway and a CEO writing seven-figure checks, we’re betting on a change of seasons.

Q1 Earnings Breakdown

10 Key Points

1) Canada Goose reported Q1 revenue growth of +10.3% Y/Y (+8.6% C$) to $118.9M, ahead of consensus of $108.8M. Growth was driven by DTC and wholesale, partially offset by a 63.6% decline in other revenue to $4.3M on minimal Friends & Family activity, with total revenue up 16% Y/Y excluding other revenue. Asia Pacific led at +37.4% (+34.6% C$) to $53.6M, with Greater China up +44.2% (+39.6% C$) to $37.5M, while Canada grew +10.7% to $27.0M. The U.S. declined 19.0% (-20.4% C$) to $21.8M on the Friends & Family pullback and softer store traffic, with EMEA down 5.7% (-7.4% C$) to $16.5M as a tougher macro backdrop weighed on store sales.

2) Adjusted net loss narrowed to $(86.5)M, or $(0.89) per share, from $(88.2)M, or $(0.91) per share, in the prior-year period, ahead of consensus for a $(0.96) loss. Q1 is seasonally a loss quarter for Canada Goose given its winter-weighted revenue base.

3) DTC revenue grew +8.6% (+6.7% C$) to $84.8M, accounting for ~71% of quarterly sales, led by APAC and North America. DTC comparable sales declined 3.2%, decelerating from +10% in Q4 and lapping a +14.8% comp last year, as softer store traffic offset double-digit e-commerce growth across all regions. Retail execution improved, with higher conversion, average order value, and units per transaction alongside strong new customer acquisition. By region, North America comps declined 1% as improved conversion was offset by softer traffic, with EMEA posting the steepest decline on challenging macro conditions. Canada Goose opened four net new stores during the quarter, bringing the permanent store count to 92, with management planning to step up marketing investment through Q2 and Q3 to drive store traffic heading into peak season.

4) Wholesale revenue increased +66.5% (+65.4% C$) to $29.8M from $17.9M, accounting for ~25% of quarterly sales, driven by a larger planned order book, stronger in-season reorders for the Spring/Summer ’26 collection, and shipment timing. Growth was broad-based, with double-digit wholesale gains in North America and strength in EMEA, as partners adopted the full range of the expanded assortment beyond core outerwear. Wholesale channel margin also expanded, with early Q2 demand tracking in line with expectations and a strong partner response to the Spring/Summer ’27 order book supporting another year of wholesale growth in FY27.

5) Canada Goose’s push to become an all-season, 365-day relevant brand continued to gain traction with its largest-ever Spring/Summer collection, which saw strong demand across both DTC and wholesale. Apparel (fleece, knitwear, shirts, and bottoms), rainwear, and windwear led category growth, expanding to nearly 40% of Q1 revenue and generating as much revenue in the quarter as the entire company did in Q1 FY19. On a full-year basis, these categories have grown from just 5% of revenue in FY22 to 15% in FY26. The growth was additive rather than cannibalizing the core, with down-filled outerwear also growing in the quarter.

6) Gross profit increased +12.1% to $74.2M, with gross margin expanding 100 bps Y/Y to 62.4% on favorable channel and regional mix. The mid-single-digit price increase implemented at the start of the year offset modest cost inflation, with management seeing no price resistance from consumers. For FY27, management expects gross margin expansion from pricing, operational efficiencies, and favorable channel mix, partially offset by product mix, raw material inflation, and supply chain cost pressures.

7) Adjusted EBIT loss narrowed to $(103.8)M from $(106.4)M, with adjusted EBIT margin improving 11.4 percentage points to (87.3)% from (98.7)%, the strongest first-quarter margin since FY2020. Normalized for one-time items in both periods, SG&A grew 6% Y/Y, well below revenue growth, driven by a 490 bps decline in marketing as a percentage of revenue, operating leverage across DTC and wholesale, and well-managed corporate expenses. Both DTC and wholesale channel margins expanded despite continued investment in upcoming store openings and the EMEA logistics network.

8) Management estimates the new 50% U.S. duties on Canadian goods, which cover a portion of Canada Goose’s products, would reduce FY27 operating margin by less than 200 bps before mitigation. The company is actively evaluating a range of mitigation measures, citing its track record of managing tariff and trade changes while still materially expanding gross margin. The FY27 outlook assumes no material impact from the duties.

9) Inventory increased 11% Y/Y to $489.9M, driven by an expanded product assortment, a larger wholesale order book, and planned production growth ahead of Fall/Winter ’26. Inventory turns still improved to 1.0x from 0.9x, up 11% Y/Y and 25% versus two years ago. Cash rose to $206.9M from $180.5M, while net debt increased to $627.8M from $541.7M, lifting net debt leverage to 2.1x adjusted EBITDA from 1.8x, primarily on higher store lease liabilities. Management also repriced its term loan late in the quarter, securing a 50 bps reduction in the credit spread.

10) Management reiterated its FY27 outlook for low-single-digit revenue growth on a constant-currency basis and adjusted EBIT margin of 11% to 12%, representing ~130 to 230 bps of expansion from the FY26 base of 9.7%. Following a stronger-than-expected start, first-half growth is expected to moderate from Q1’s pace, with early Q2 store traffic consistent with Q1, e-commerce remaining strong, and wholesale demand tracking in line. Stepped-up marketing in Q2 and Q3, alongside EMEA logistics and e-commerce investments, should modestly pressure H1 margins, with H2 expansion driven by cost leverage and the non-recurrence of FY26’s U.S. wholesale bad debt and store impairment charges. As is typical, ~75% of annual revenue and effectively all of the company’s profit are generated in the back half.

Earnings Call Highlights

Estée Lauder Update

For newer readers, here’s a quick overview of the key drivers behind our thesis on Estée Lauder, a leader in global prestige beauty that is now inflecting back to growth following a cyclical slowdown, with meaningful operating leverage still to come:

Company Overview

• Founded in 1946 by Estée and Joseph Lauder. Portfolio of 25+ premium brands including Estée Lauder, Clinique, La Mer, M·A·C, TOM FORD, Jo Malone, The Ordinary, and Le Labo.
• Six $1B+ brands (Clinique, Estée Lauder, La Mer, M.A.C, plus Jo Malone London and TOM FORD, which joined in FY26).
• The #2 player in the ~$160B global prestige beauty market, well-positioned for the premiumization trend.
• ~$15.0B in annual revenue (FY26).
• Category mix: skin care 49% of sales (highest margins, >70% of operating income), makeup 29%, fragrance 17%, hair care 4%.
• ~70% of sales outside the Americas (key beneficiary from a weaker U.S. dollar). Mainland China >20% of sales (largest single country, highly skincare-exposed).

Management

• CEO Stéphane de La Faverie (effective January 1, 2025). A 25+ year company veteran who led the Estée Lauder brand and the PRGP turnaround.
• First time in company history with no Lauder family member in an executive position or daily operations. CEO search family drama now resolved. The Lauder family retains ~38% equity ownership and ~82% voting power, committed long-term as shareholders.

What Happened

• Multiyear challenges FY2022-2025: three consecutive sales declines, EPS down ~80% from FY2022 peak ($7.24 to $1.51 trough), stock fell >85% from ~$350 highs to <$50 lows.
• Primarily driven by China/Asia macro weakness with over-indexed exposure. China revenue share rose from 13% in FY2018 to a 36% peak in FY2021. Travel retail climbed from 18% to a 28% peak over the same period.
• Over-expansion and oversaturation drove inventory up 84% from FY2018-2023 to ~$3B. Heavy discounting and write-downs pressured gross margins (~500 bps peak-to-trough to 71.7% in FY2024).
• China’s weakness was largely cyclical. EL maintained prestige market share throughout the downturn. Asia travel retail destocking was the single biggest earnings drag.
• Now cleaned up: China ~20% of revenues (down from 36% peak), travel retail ~15% (down from 28% peak), and inventory at a healthy $2.0B (~-35% from peak).

Cost Cuts + Margin Expansion

• PRGP (launched 2023) + Beauty Reimagined driving transformation: net workforce reduction of ~10,000 positions, with 70%+ of the reduction tied to point-of-sale roles in unproductive department stores and freestanding doors. Restructuring approvals concluded as of June 30, 2026, driving a 50% increase in productivity across corporate-function employees.
• Restructuring charges slightly above the high end of $1.5-1.7B, mostly employee-related.
• Annual gross savings of $1.0-1.2B by FY2027 via procurement, overhead cuts, and supply chain optimization. Non-consumer-facing expenses held flat for the full year (down in every quarter except Q4 on higher incentive costs), funding a +7% increase in consumer-facing investment for FY26 (+4% ex-FX).
• The vast majority of PRGP run-rate benefits are still expected in FY27, with full annualization in FY28.
• FY26 adjusted gross margin 75.5%, up 150 bps from 74.0% a year ago. (trough 71.4% in FY23)
• Adjusted operating margin troughed at 8% in FY2025.
• FY26 adjusted OM 11.2%, up 320 bps from 8.0% a year ago.
• First full-year operating margin expansion in four years (+320 bps to 11.2%). FY27 adjusted OM guide raised to 12.7-13.5% would mark ~500 bps of margin expansion since the launch of Beauty Reimagined, with management flagging significant runway beyond (historical mid-teens).

Growth Inflecting

• Delivered the first year of positive organic growth in four years (+3% in FY26) (prior: -8% FY2025, -1.7% FY2024, -6% FY2023).
• Q4 FY2026: +5% organic sales (strongest quarter of the year), a fourth consecutive quarter of organic growth. All four regions and every category except haircare grew (first time since 2022)
• By category (Q4 organic): fragrance +10% on luxury strength (Le Labo, TOM FORD, KILIAN PARIS), skincare +7%, makeup +2%, haircare -1%.
• Mainland China: +7% organic and +12% reported to $824M in Q4 (+9% organic for the full year), with EL gaining prestige beauty share for the sixth consecutive quarter. 11 brands in retail sales growth (6 double-digit) in Q4. Online now 50%+ of the China business.
• Travel Retail back to positive territory globally in June and July for the first time in 3 years, led by Hainan.
• U.S. returned to organic growth in Q4, stabilizing and stopping a decade-plus of share losses.

Push into Digital

• Shift away from slower department stores and freestanding doors. Department stores down from ~60% of U.S. revenues to <30%. Freestanding locations down 10-15%.
• Online organic sales +double digits, driving prestige beauty share gains across markets including China and the U.S. Online reached a record 34% of reported sales in FY26 (+3 pts Y/Y) and getting closer to 40% in the U.S.
• U.S. online sales grew high single digits, a key driver of the country’s stabilization.
• Amazon now spans 13 brands across 11 markets; TikTok Shop covers 12 brands across 9 markets. MAC’s March launch in U.S. Sephora drove the brand to #1 in makeup at launched doors.
• Faster-growing channels translating to top-line growth and margin leverage.

Key Financials + FY2026 Guidance

• Full-year 2026 revenue $15.05B (+5%), full-year adjusted EPS $2.51 (+66% Y/Y).
• FY27 guidance: organic sales +3-5%. Adjusted OM raised to 12.7-13.5% (from a preliminary 12.5-13.0% in May), a ~13.1% midpoint vs. ~12.9% consensus. Adjusted EPS $3.10-$3.35 (+24-34% Y/Y) vs. consensus ~$3.18. Makeup returns to growth for the full year; North America accelerating; first half stronger than second.
• FCF $1.32B in FY26 vs. $0.67B last year, nearly doubling on higher earnings and lower CapEx (down to $457M). Ended the year with $3.5B cash.
• Cash ~$3.5B. Debt ~$7.3B. Dividend $1.40/share, ~1.5% yield.

Q4 Commentary

Estée Lauder’s multi-year makeover is starting to pay off.

Fourth-quarter organic sales grew 5.3%, the strongest quarter of the year and a fourth consecutive quarter of growth, bringing full-year organic growth to 3.4% after three straight years of declines (-6.0% in FY23, -1.7% in FY24, -8.1% in FY25). Adjusted operating margin expanded 320 bps to 11.2%, with management guiding FY27 adjusted operating margin to 12.7-13.5%, up from its initial outlook of 12.5-13.0%, alongside 3-5% organic sales growth. The results confirmed what we have been pounding the table on: the turnaround has reached its inflection point, with the story shifting from cost cuts and restructuring to growth and operating leverage. The market got the message, sending shares up 16.3% on the day in the stock’s best single session since 2011.

Following Q4 earnings, CEO Stéphane de La Faverie did a great interview covering organic growth, M&A, the China recovery, travel retail, innovation, and more:

Up until this point, the Estée Lauder story has been one of self-help. Under the Profit Recovery and Growth Plan, management rebuilt the cost base from the ground up, rightsizing the organization, improving procurement, optimizing the supply chain, outsourcing back-office functions, and overhauling a go-to-market model that leaned too heavily on unproductive department store and freestanding doors. The plan was designed to deliver $1.2B in annual gross savings through a net reduction of ~10,000 positions, with both targets landing at the high end of management’s original expectations. With approvals now complete and full run-rate savings flowing through by FY28, the self-help box is largely checked. The payoff from that heavy lifting can already be seen in gross margins, which have rebounded to 75.5% from a trough of 71.4% in FY23.

More importantly, FY26 marked the first year those self-help efforts translated into operating leverage, with the return to growth helping drive the first full-year expansion in operating margin in four years.

The growth is broad-based across the portfolio, adding credibility to the recovery, with the fourth quarter marking the first since 2022 in which every region and product category grew organically, with the exception of hair care.

In fact, Jo Malone London and TOM FORD both joined the billion-dollar club in FY26, giving Estée six $1B+ brands alongside Clinique, Estée Lauder, La Mer, and M·A·C, while The Ordinary grew double digits for the year and is knocking on the door of $1B after ~doubling sales since FY22.

Mainland China, accounting for ~20% of sales, continues to lead the growth recovery. After falling ~6% in FY25, organic sales grew 9% in FY26 as Estée gained prestige beauty share for a sixth consecutive quarter in one of the most competitive markets in the world. The recovery is no longer just a La Mer and skin care story either, with 11 brands growing at retail in the fourth quarter, six at a double-digit pace, while fragrance grew double digits and makeup mid-single digits for the year, alongside high single-digit growth in skin care.

Travel retail remains a key driver of both the Mainland China turn and Asia/Pacific, where organic sales grew 4% in FY26. Estée got caught offsides in travel retail in 2023 and has spent the past several years rightsizing the channel, reducing it to ~15% of sales from a 28% peak and putting a new team in place to manage inventory and shipping based on retail demand. The progress is starting to show, with global travel retail turning positive in June and July for the first time in three years, led by double-digit growth in Hainan.

In the Americas, Estée’s largest region at ~30% of sales, the story is moving from stabilization to acceleration. Organic sales grew 1% in FY26 after years of declines in North America weighed on the region. The fourth quarter saw an acceleration to 5% organic growth, alongside U.S. volume share gains in prestige beauty after more than a decade of share losses. Accelerating North America is a top priority for FY27, with the plan built around three pieces: a bigger innovation pipeline led by prestige fragrance launches like Estée Lauder Glimmer (its first major launch in >10 years), wider distribution into the channels where consumers actually shop, and sharper execution across the brick-and-mortar doors it keeps.

That channel shift is a big reason behind both China’s turn and the Americas’ recovery. Online sales grew double digits in FY26 to a record 34% of reported sales, up 3 percentage points from a year ago, with online now accounting for more than half of the business in China.

Estée has expanded to 13 brands across 11 markets on Amazon and 12 brands across nine markets on TikTok Shop, while steadily reducing its reliance on department stores and their labor-heavy beauty counters. M·A·C is a strong example of the pivot working, going from a high-single-digit decline in FY25 to mid-single-digit growth in FY26 and reclaiming the #1 makeup position in the U.S. in the fourth quarter on the back of its push into Sephora and TikTok Shop.

That return to growth is now setting the stage for operating leverage. Adjusted operating margin ran between 15.5% and 17.3% from FY15 through FY19 and peaked at 19.7% in FY22 before bottoming at 8.0% in FY25, with FY27 guidance now calling for ~13.1% at the midpoint. Consensus has margins reaching 13.2% in FY27, 14.5% in FY28, and 15.3% in FY29, implying EBIT growth of ~22%, 15%, and 11% over the next three years on sales growth of only ~4-5% annually. That implies significant operating leverage, yet it essentially pencils in a return to the historical mid-teens norm.

But the company coming out of this downturn is not the same one that went into it. Estée is a structurally higher-margin business today, with ~$1.2B of costs removed, a P&L shifted from fixed toward variable costs, and a channel mix tilting away from labor-intensive counters. Estée also finds itself an AI beneficiary today, an opportunity the company didn’t have before and is already leaning into to speed up R&D and optimize media spend.

The company is set to deliver ~500 bps of margin expansion across FY26 and FY27, without the full annualization of PRGP savings or the efficiency gains in consumer-facing spend that management still sees as largely untapped. We think the combination of the operational improvements already made and the operating leverage still to come as sales accelerate makes a return to the high teens well within reach. Keep in mind, those margins in FY22 produced $7.24 of EPS, more than double the $3.10-$3.35 guided for FY27, a reminder of how much earnings power remains ahead.

As management continues to execute, we expect the operating leverage and normalized earnings power of the business to become increasingly difficult for the market to ignore.

General Market

The CNN “Fear and Greed Index” ticked up to 48 this week from 32 last week. You can learn how this indicator is calculated and how it works here: (Video Explanation)

The NAAIM (National Association of Active Investment Managers Index) (Video Explanation) ticked down to 76.99% equity exposure this week from 88.12% last week.

Our podcast|videocast will be out sometime today. We have a lot of great data to cover this week.  Each week, we have a segment called “Ask Me Anything (AMA)” where we answer questions sent in by our audience. If you have a question for this week’s episode, please send it in at the contact form here.

We are now officially open to smaller accounts of $1.5M+. We will close to new accounts on Thursday, October 15.

To see if you qualify and to take advantage of this opening click here, or go to GreatHillCapital.com for more details.

Larger accounts $5–10M+ can access bespoke service anytime here.

Not a solicitation.

*Opinion, Not Advice. See Terms

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The column under the date 10/6/2026 has a letter that represents the movement in 2026 earnings estimates since the most recent print (8/7/2026). “U” means 2026 estimates are UP in the last 60 days. “D” means 2026 estimates are DOWN in the last 60 days. “S” means 2026 estimates have remained the SAME in the last 60 days. The column entitled “1yr Target Est” is the Wall Street consensus 12 month price target for each stock.

What this table is telling us is that estimates are DOWN. More estimates went DOWN for 2026 in the past 60 days than went UP. The UP:DOWN ratio was 8:15. The rest remained the same.

The cumulative 2026 earnings power of the group went DOWN by -1.80% in the last 60 days. 2027 estimates are UP +0.29% in the past 60 days.

The post Basic Materials (XLB)- Earnings Estimates/Revisions appeared first on Hedge Fund Tips.

The column under the date 10/6/2026 has a letter that represents the movement in 2026 earnings estimates since the most recent print (8/7/2026). “U” means 2026 estimates are UP in the last 60 days. “D” means 2026 estimates are DOWN in the last 60 days. “S” means 2026 estimates have remained the SAME in the last 60 days. The column entitled “1yr Target Est” is the Wall Street consensus 12 month price target for each stock.

What this table is telling us is that estimates are UP. More estimates went UP for 2026 in the past 60 days than went DOWN. The UP:DOWN ratio was 25:4. The rest remained the same.

The cumulative 2026 earnings power of the group went UP by +12.84% in the last 60 days. 2027 estimates are UP by +16.23% in the past 60 days.

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Nasdaq Stocks Above 50 EMA

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Volatility index – CBOE Options Equity Put/Call Ratio

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Nasdaq Swenlin Trading Oscillator

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Health Care Advance Decline Percent

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Article referenced in VideoCast above:

“A Taste for Defense” Stock Market (and Sentiment Results)…

Key Takeaways – Episode 363

A detailed summary of this week’s videocast with Tom Hayes, covering the portfolio walkthrough, stock ideas, positioning, and market sentiment.

Executive summary

Tom spent five separate TV appearances this week on the same message: the market’s narrow breadth. The median S&P 500 stock is down ~16% even as the index sits near its record high, with ~53% of components below their 200-day moving average and ~73% below their 50-day; negative-beta readings (stocks moving opposite the index) are at their highest level since March 2000. He frames it as a beach ball held underwater by five or 10 AI names: a pause in the Iran war and lower oil and yields would let the other ~90% of the market catch up, while a second Fed hike into the supply shock risks pushing the 2-year/10-year curve, now ~30 basis points from inverting, into inversion and a recession 12–24 months out.

Bonds, healthcare, and staples are now the three most out-of-favor groups relative to the S&P 500 since the 2000 tech peak, a setup Tom again compares to Buffett buying Procter & Gamble and Disney while underperforming the index by 45% ahead of the dot-com crash. Diageo and Hormel Foods got the deepest coverage this week as examples: both are working through company-specific resets inside an out-of-favor staples sector trading near record-low weightings.

PayPal, Disney, GXO Logistics, and Comstock Resources were the recurring stock picks across his Fox Business and NYSE hits, alongside a fresh update on Estée Lauder’s turnaround. On the portfolio, Tom said he’s continuing to buy Papa John’s and Canada Goose on weakness and is considering adding new money to Cooper Standard even above the current cost basis.

“Investors should remember that their scorecard is not computed using Olympic diving methods. Degree of difficulty does not count for great investment returns, and quite frequently, it’s just the opposite.”

Tom Hayes, on Degree Of Difficulty

Market sentiment and macro view

Breadth and a narrowing market

• The median S&P 500 stock is down ~16% while the index trades near its record high. ~53% of components are below their 200-day moving average and ~73% are below their 50-day, extremes Tom compares to 2000 and 2007.
• Negative-beta readings (stocks moving opposite the index) are at their highest level since March 2000, and realized stock correlation is at its lowest since March 2000.
• Five to six mega-cap AI stocks have contributed ~93% of the S&P 500’s gains since Citadel stepped in to stabilize the market in late July, per Barron’s.
• More than 100 S&P 500 stocks hit new 52-week lows in a recent session while the index sat within 5% of its all-time high, a combination that has historically preceded a weaker month.
• Healthcare’s 52-week market breadth is the weakest since the 2000 peak.

Rates, yields, and the Fed

• The 10-year yield is above 5.2% and the 30-year is near 5.535%. Tom said hiking into a short-term oil supply shock rarely works, pointing to the ECB’s failed attempts in 2008 and 2011.
• The 2-year/10-year curve has ~30 basis points left before inverting. Market odds of an October 28 hike sit near 70%; a second hike into the supply shock risks tipping the curve into inversion, with a recession typically following 12–24 months later.
• Core CPI is at 2.5%, its lowest level in six years (pre-COVID), which Tom says argues for patience rather than a second hike.
• The Fed’s Williams signaled openness to a pause, which lowered the market’s odds of an October hike.
• Tom remains a buyer of the 10-year, framing it as a locked-in 5%-plus yield against a 5% equity earnings yield with no guarantee.

Positioning and valuation

• Bonds, healthcare, and staples are now the three most out-of-favor groups relative to the S&P 500 since the 2000 tech peak, a disfavor Tom calls a generational buying opportunity.
• Equity issuance is running ~3x both the 2000 and 2007 peaks (closer to 2x on an inflation-adjusted basis).
• Aggregate investor equity allocation is at its highest level since the 1999–2000 range, with 2021 the only other period that came close.
• Rolling 10-year total returns for stocks versus bonds are at their widest gap since the 2000 tech peak, with the next-closest comparisons being the Nifty Fifty era and the late 1920s.
• Consumer discretionary’s weight in the S&P 500 is at its lowest since the Global Financial Crisis, a level of despondency Tom contrasts with the AI-driven weight gain in names like Nvidia.
• Pension funds are modeled to sell ~$33 billion of U.S. equities at quarter-end, in the 97th–98th percentile of estimates going back to 2000.

AI credit and financing signals

• CoreWeave’s borrowing cost has risen from ~5% to ~9%. Oracle’s bonds, issued at 110, are trading in the low 90s, and Oracle filed a force majeure notice on a New Mexico data center it may not open until 2028.
• Meta’s Hyperion data center bond has also fallen from its offering price into the low 90s, with a yield near 7.5% despite an A+ rating.
• Oracle’s credit-default-swap gauge is at a record high, and SoftBank’s CDS spreads are rising alongside it.
• Wall Street’s sector-level forecasts look inconsistent to Tom: analysts covering tech expect operating cash flow to more than double to ~$2.4 trillion by 2028 (+$1.2 trillion), while analysts covering the industries that would pay for those AI services forecast far less cash flow growth, which raises the question of who ends up writing the checks.
• Hyperscalers are expected to issue ~$420 billion of global investment-grade debt in 2027.

Politics, the economy, and seasonals

• Prediction-market odds have moved further toward a Democratic sweep of the House and Senate (~62%–63%), from ~80% Republican odds before the Iran war. Tom still sees a mixed or gridlocked government as the most likely, and most bullish, outcome.
• Atlanta Fed GDPNow is above 5% versus the New York Fed’s ~2% estimate, a wide discrepancy. ISM manufacturing has been in expansion 8 of the last 9 months.
• A four-year seasonal composite shows weakness heading into the midterms, historically followed by a rally after the election; October itself tends to start weak and firm up by around the 9th.
• U.S. new home sales hit their fastest pace of 2026 in August, while the median sales price is down ~6% year over year.

Long ideas — defensives, staples, and out-of-favor consumer names

Names Tom walked through as current portfolio holdings or ideas he actively endorsed on the episode. Prices and levels are as cited on air.

Avoid, trim, or pass

Tom remains cautious on crowded or speculative names but did not call new shorts this week. Where a name is listed as a pass, he is declining to allocate capital rather than calling a short.

Portfolio moves

• Papa John’s. Continuing to buy on weakness to bring down the portfolio’s cost basis.
• Canada Goose. The portfolio has been buying.
• Cooper Standard. Considering adding new money even above the current cost basis.
• New accounts. The quarterly opening for smaller accounts (minimum $1.5 million) runs October 1 through October 15 for Q3; larger accounts ($5 million and up) can access the strategy anytime.

Media appearances

Fox Business — with Liz Claman, Monday

• On Nvidia’s $150 billion buyback failing to lift the Dow broadly: called it “a tale of two cities,” with the median S&P 500 stock down 16% and ~53% of components below their 200-day and 50-day moving averages even as the index sits near highs.
• Said hiking into an oil-driven supply shock rarely works, with only ~30 basis points of room left before the 2-year/10-year curve inverts; core CPI at 2.5% is its lowest in six years.
• Noted prediction-market odds have shifted from ~80% Republican sweep before the Iran war to ~62% Democratic sweep now.
• Highlighted Estée Lauder as a current example of an out-of-favor name reaccelerating after cost cuts and a shift to e-commerce and Sephora.
• On AI credit stress: CoreWeave’s borrowing cost has risen from ~5% to ~9%, and both Oracle’s and Meta’s data-center bonds have fallen well below their issue prices.

Fox Business — with Stuart Varney, Tuesday

• Reiterated the beach-ball-underwater framing: a pause in the Iran war and lower yields would let the ~90% of the market that hasn’t participated catch up to the five or 10 AI names holding the indices up.
• Flagged the 2-year/10-year curve’s ~30 basis points of remaining room before inversion as the top risk if the Fed hikes again in October.
• Pitched GXO Logistics (AI beneficiary, not cost center, ~30% of Fortune 100 as customers, down ~50% from its peak) and Comstock Resources (lowest-cost U.S. gas producer, Jerry Jones owns 71%, sees the stock up ~4x over 3–5 years).
• On IonQ, said he prefers quantum-computing exposure with a free-cash-flow backstop over a pure-play, and on SpaceX’s new $200 TD Cowan price target, said he’d wait for a better entry price.
• Called JPMorgan’s upgrade of Bloomin’ Brands a positive read-through for out-of-favor consumer discretionary and restaurant names broadly.

NYSE — with Kristen Scholer, Monday

• Framed the week as good news/bad news: the economy and earnings look fine, but 53% of S&P 500 stocks are below their 200-day moving average and 73% below their 50-day.
• Said bonds, healthcare, and staples are the most out of favor versus the S&P since the 2000 peak, comparing it again to Buffett’s early-2000s underperformance before a multi-year run of outperformance.
• Said equity inflows haven’t been this concentrated since the 2000, 2007, and late-2021 peaks.
• On PayPal: dismissed Stripe-deal concerns, noting free cash flow, revenue, and EPS are all up ~50% since the 2021 peak despite the stock being down 80%, and credited Mark Grether’s build-out of the ad business as a future free-cash-flow driver.
• On Disney: cited its 13.9x earnings multiple versus a 20x-plus 5-year average, profitable streaming, and ~$10 billion of annual free cash flow.

Schwab Network — with Diane King Hall, Monday

• Called the market “a beach ball held underwater,” with 53% of the S&P 500 below its 200-day moving average, 73% below its 50-day, and negative-beta readings at their highest since March 2000.
• Noted all three classic pre-correction signals, a hiking cycle, a yield spike, and an oil spike, are present at the same time.
• Said bonds, healthcare, and staples are as out of favor versus the S&P as they’ve been since March 2000, comparing it to energy’s 2.5% weight in the index during COVID.
• Recommended buying the 10-year note (just above a 5% locked-in yield) and selectively adding healthcare and defensive names as ballast against AI-name concentration.

Big Money Show — Fox Business

• On the White House’s voluntary AI “Super Intelligence” accord: called it a reasonable start, comparing it to FINRA’s creation after the 2000 tech wreck, while noting self-regulation “works until something breaks,” pointing to the same day’s Senate vote against a congressional stock-trading ban as a cautionary sign.
• On Robinhood’s new agentic AI trading feature: skeptical it benefits investors more than Robinhood’s own trade-flow revenue, saying anyone investing on a 0–12 month timeline will get “arbed out” by machines while patient, intrinsic-value investors see more opportunity as mispriced stocks stay down longer and re-rate faster once they turn.
• On Eli Lilly’s injectable combination GLP-1 drug (23% body-weight loss in trials versus 15% for the single drug): called it a productivity and healthcare-sector tailwind, consistent with healthcare being the most out-of-favor sector versus the S&P since March 2000.
• On the slowing IPO market (average first-day gains down from 24% in June to under 1% by late September): tied it to the same equity-supply overhang pressuring the broader market, and said large, late-stage IPOs increasingly function as exits for existing investors rather than entry points, citing Anthropic’s reported valuation against its revenue as pricing he wouldn’t pay.
• On Micron’s earnings that evening: said results would likely be good, but guidance is the key, and “high prices cure high prices” applies to memory chips as much as any other commodity.

• Benzinga/Yahoo — featured in coverage of the PayPal/Meta Muse partnership this week.
• Reuters — quoted by Johann Cherian this week.

What to watch

Opinion only for Informational/Educational purposes only. Not investment Advice. Not a solicitation to buy or sell securities. Read full terms at HedgeFundTips.com under Terms link.

The post Hedge Fund Tips with Tom Hayes – VideoCast – Episode 363 appeared first on Hedge Fund Tips.

Article referenced in Podcast above:

“A Taste for Defense” Stock Market (and Sentiment Results)…

Key Takeaways – Episode 363

A detailed summary of this week’s videocast with Tom Hayes, covering the portfolio walkthrough, stock ideas, positioning, and market sentiment.

Executive summary

Tom spent five separate TV appearances this week on the same message: the market’s narrow breadth. The median S&P 500 stock is down ~16% even as the index sits near its record high, with ~53% of components below their 200-day moving average and ~73% below their 50-day; negative-beta readings (stocks moving opposite the index) are at their highest level since March 2000. He frames it as a beach ball held underwater by five or 10 AI names: a pause in the Iran war and lower oil and yields would let the other ~90% of the market catch up, while a second Fed hike into the supply shock risks pushing the 2-year/10-year curve, now ~30 basis points from inverting, into inversion and a recession 12–24 months out.

Bonds, healthcare, and staples are now the three most out-of-favor groups relative to the S&P 500 since the 2000 tech peak, a setup Tom again compares to Buffett buying Procter & Gamble and Disney while underperforming the index by 45% ahead of the dot-com crash. Diageo and Hormel Foods got the deepest coverage this week as examples: both are working through company-specific resets inside an out-of-favor staples sector trading near record-low weightings.

PayPal, Disney, GXO Logistics, and Comstock Resources were the recurring stock picks across his Fox Business and NYSE hits, alongside a fresh update on Estée Lauder’s turnaround. On the portfolio, Tom said he’s continuing to buy Papa John’s and Canada Goose on weakness and is considering adding new money to Cooper Standard even above the current cost basis.

“Investors should remember that their scorecard is not computed using Olympic diving methods. Degree of difficulty does not count for great investment returns, and quite frequently, it’s just the opposite.”

Tom Hayes, on Degree Of Difficulty

Market sentiment and macro view

Breadth and a narrowing market

• The median S&P 500 stock is down ~16% while the index trades near its record high. ~53% of components are below their 200-day moving average and ~73% are below their 50-day, extremes Tom compares to 2000 and 2007.
• Negative-beta readings (stocks moving opposite the index) are at their highest level since March 2000, and realized stock correlation is at its lowest since March 2000.
• Five to six mega-cap AI stocks have contributed ~93% of the S&P 500’s gains since Citadel stepped in to stabilize the market in late July, per Barron’s.
• More than 100 S&P 500 stocks hit new 52-week lows in a recent session while the index sat within 5% of its all-time high, a combination that has historically preceded a weaker month.
• Healthcare’s 52-week market breadth is the weakest since the 2000 peak.

Rates, yields, and the Fed

• The 10-year yield is above 5.2% and the 30-year is near 5.535%. Tom said hiking into a short-term oil supply shock rarely works, pointing to the ECB’s failed attempts in 2008 and 2011.
• The 2-year/10-year curve has ~30 basis points left before inverting. Market odds of an October 28 hike sit near 70%; a second hike into the supply shock risks tipping the curve into inversion, with a recession typically following 12–24 months later.
• Core CPI is at 2.5%, its lowest level in six years (pre-COVID), which Tom says argues for patience rather than a second hike.
• The Fed’s Williams signaled openness to a pause, which lowered the market’s odds of an October hike.
• Tom remains a buyer of the 10-year, framing it as a locked-in 5%-plus yield against a 5% equity earnings yield with no guarantee.

Positioning and valuation

• Bonds, healthcare, and staples are now the three most out-of-favor groups relative to the S&P 500 since the 2000 tech peak, a disfavor Tom calls a generational buying opportunity.
• Equity issuance is running ~3x both the 2000 and 2007 peaks (closer to 2x on an inflation-adjusted basis).
• Aggregate investor equity allocation is at its highest level since the 1999–2000 range, with 2021 the only other period that came close.
• Rolling 10-year total returns for stocks versus bonds are at their widest gap since the 2000 tech peak, with the next-closest comparisons being the Nifty Fifty era and the late 1920s.
• Consumer discretionary’s weight in the S&P 500 is at its lowest since the Global Financial Crisis, a level of despondency Tom contrasts with the AI-driven weight gain in names like Nvidia.
• Pension funds are modeled to sell ~$33 billion of U.S. equities at quarter-end, in the 97th–98th percentile of estimates going back to 2000.

AI credit and financing signals

• CoreWeave’s borrowing cost has risen from ~5% to ~9%. Oracle’s bonds, issued at 110, are trading in the low 90s, and Oracle filed a force majeure notice on a New Mexico data center it may not open until 2028.
• Meta’s Hyperion data center bond has also fallen from its offering price into the low 90s, with a yield near 7.5% despite an A+ rating.
• Oracle’s credit-default-swap gauge is at a record high, and SoftBank’s CDS spreads are rising alongside it.
• Wall Street’s sector-level forecasts look inconsistent to Tom: analysts covering tech expect operating cash flow to more than double to ~$2.4 trillion by 2028 (+$1.2 trillion), while analysts covering the industries that would pay for those AI services forecast far less cash flow growth, which raises the question of who ends up writing the checks.
• Hyperscalers are expected to issue ~$420 billion of global investment-grade debt in 2027.

Politics, the economy, and seasonals

• Prediction-market odds have moved further toward a Democratic sweep of the House and Senate (~62%–63%), from ~80% Republican odds before the Iran war. Tom still sees a mixed or gridlocked government as the most likely, and most bullish, outcome.
• Atlanta Fed GDPNow is above 5% versus the New York Fed’s ~2% estimate, a wide discrepancy. ISM manufacturing has been in expansion 8 of the last 9 months.
• A four-year seasonal composite shows weakness heading into the midterms, historically followed by a rally after the election; October itself tends to start weak and firm up by around the 9th.
• U.S. new home sales hit their fastest pace of 2026 in August, while the median sales price is down ~6% year over year.

Long ideas — defensives, staples, and out-of-favor consumer names

Names Tom walked through as current portfolio holdings or ideas he actively endorsed on the episode. Prices and levels are as cited on air.

Avoid, trim, or pass

Tom remains cautious on crowded or speculative names but did not call new shorts this week. Where a name is listed as a pass, he is declining to allocate capital rather than calling a short.

Portfolio moves

• Papa John’s. Continuing to buy on weakness to bring down the portfolio’s cost basis.
• Canada Goose. The portfolio has been buying.
• Cooper Standard. Considering adding new money even above the current cost basis.
• New accounts. The quarterly opening for smaller accounts (minimum $1.5 million) runs October 1 through October 15 for Q3; larger accounts ($5 million and up) can access the strategy anytime.

Media appearances

Fox Business — with Liz Claman, Monday

• On Nvidia’s $150 billion buyback failing to lift the Dow broadly: called it “a tale of two cities,” with the median S&P 500 stock down 16% and ~53% of components below their 200-day and 50-day moving averages even as the index sits near highs.
• Said hiking into an oil-driven supply shock rarely works, with only ~30 basis points of room left before the 2-year/10-year curve inverts; core CPI at 2.5% is its lowest in six years.
• Noted prediction-market odds have shifted from ~80% Republican sweep before the Iran war to ~62% Democratic sweep now.
• Highlighted Estée Lauder as a current example of an out-of-favor name reaccelerating after cost cuts and a shift to e-commerce and Sephora.
• On AI credit stress: CoreWeave’s borrowing cost has risen from ~5% to ~9%, and both Oracle’s and Meta’s data-center bonds have fallen well below their issue prices.

Fox Business — with Stuart Varney, Tuesday

• Reiterated the beach-ball-underwater framing: a pause in the Iran war and lower yields would let the ~90% of the market that hasn’t participated catch up to the five or 10 AI names holding the indices up.
• Flagged the 2-year/10-year curve’s ~30 basis points of remaining room before inversion as the top risk if the Fed hikes again in October.
• Pitched GXO Logistics (AI beneficiary, not cost center, ~30% of Fortune 100 as customers, down ~50% from its peak) and Comstock Resources (lowest-cost U.S. gas producer, Jerry Jones owns 71%, sees the stock up ~4x over 3–5 years).
• On IonQ, said he prefers quantum-computing exposure with a free-cash-flow backstop over a pure-play, and on SpaceX’s new $200 TD Cowan price target, said he’d wait for a better entry price.
• Called JPMorgan’s upgrade of Bloomin’ Brands a positive read-through for out-of-favor consumer discretionary and restaurant names broadly.

NYSE — with Kristen Scholer, Monday

• Framed the week as good news/bad news: the economy and earnings look fine, but 53% of S&P 500 stocks are below their 200-day moving average and 73% below their 50-day.
• Said bonds, healthcare, and staples are the most out of favor versus the S&P since the 2000 peak, comparing it again to Buffett’s early-2000s underperformance before a multi-year run of outperformance.
• Said equity inflows haven’t been this concentrated since the 2000, 2007, and late-2021 peaks.
• On PayPal: dismissed Stripe-deal concerns, noting free cash flow, revenue, and EPS are all up ~50% since the 2021 peak despite the stock being down 80%, and credited Mark Grether’s build-out of the ad business as a future free-cash-flow driver.
• On Disney: cited its 13.9x earnings multiple versus a 20x-plus 5-year average, profitable streaming, and ~$10 billion of annual free cash flow.

Schwab Network — with Diane King Hall, Monday

• Called the market “a beach ball held underwater,” with 53% of the S&P 500 below its 200-day moving average, 73% below its 50-day, and negative-beta readings at their highest since March 2000.
• Noted all three classic pre-correction signals, a hiking cycle, a yield spike, and an oil spike, are present at the same time.
• Said bonds, healthcare, and staples are as out of favor versus the S&P as they’ve been since March 2000, comparing it to energy’s 2.5% weight in the index during COVID.
• Recommended buying the 10-year note (just above a 5% locked-in yield) and selectively adding healthcare and defensive names as ballast against AI-name concentration.

Big Money Show — Fox Business

• On the White House’s voluntary AI “Super Intelligence” accord: called it a reasonable start, comparing it to FINRA’s creation after the 2000 tech wreck, while noting self-regulation “works until something breaks,” pointing to the same day’s Senate vote against a congressional stock-trading ban as a cautionary sign.
• On Robinhood’s new agentic AI trading feature: skeptical it benefits investors more than Robinhood’s own trade-flow revenue, saying anyone investing on a 0–12 month timeline will get “arbed out” by machines while patient, intrinsic-value investors see more opportunity as mispriced stocks stay down longer and re-rate faster once they turn.
• On Eli Lilly’s injectable combination GLP-1 drug (23% body-weight loss in trials versus 15% for the single drug): called it a productivity and healthcare-sector tailwind, consistent with healthcare being the most out-of-favor sector versus the S&P since March 2000.
• On the slowing IPO market (average first-day gains down from 24% in June to under 1% by late September): tied it to the same equity-supply overhang pressuring the broader market, and said large, late-stage IPOs increasingly function as exits for existing investors rather than entry points, citing Anthropic’s reported valuation against its revenue as pricing he wouldn’t pay.
• On Micron’s earnings that evening: said results would likely be good, but guidance is the key, and “high prices cure high prices” applies to memory chips as much as any other commodity.

• Benzinga/Yahoo — featured in coverage of the PayPal/Meta Muse partnership this week.
• Reuters — quoted by Johann Cherian this week.

What to watch

Opinion only for Informational/Educational purposes only. Not investment Advice. Not a solicitation to buy or sell securities. Read full terms at HedgeFundTips.com under Terms link.

The post Hedge Fund Tips with Tom Hayes – Podcast – Episode 363 appeared first on Hedge Fund Tips.

Thanks to Reuters for including me in their article on the September jobs report. You can find it here:

Click Here to View The Full Reuters Article

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Pring European Diffusion Indicator

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NASDAQ – Eakle Advance Decline Index

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Watch in HD Directly on Fox Business

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Health Care New High New Low %

The post Indicator of the Day (video): Health Care New High New Low % appeared first on Hedge Fund Tips.

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On Monday, I joined the amazing Liz Claman on Fox Business’ The Claman Countdown to discuss markets, the economy, outlook, breadth, bonds, the Fed, Iran, healthcare, staples, AI, Estee Lauder ($EL), and more. Thanks to Liz, Brooke Haliscak, and Jake Mack for having me on:

On Tuesday, I joined the great Stuart Varney on Fox Business’ Varney & Co. to discuss markets, the economy, outlook, breadth, the Fed, yields, Iran, the consumer, AI, GXO Logistics ($GXO), Comstock Resources ($CRK), Meta ($META), AMD ($AMD), SpaceX ($SPCX), Netflix ($NFLX), and a lot more. Thanks to Stuart, Maggie Edwards, and Nick Palazzo for having me on:

On Monday, I joined Kristen Scholer on NYSE TV to discuss markets, the economy, outlook, breadth, bonds, the Fed, healthcare, staples, tech, AI, and more. Thanks to Kristen and Mel Montanez for having me on:

On Monday, I joined Diane King Hall on the Schwab Network to discuss markets, the economy, outlook, breadth, the Fed, Iran, oil, bonds, PayPal ($PYPL), Disney ($DIS), and more. Thanks to Diane and Kaitlyn Crist for having me on:

Hormel Update

For newer readers, here’s a brief overview of the key drivers behind our thesis on Hormel, an out-of-favor staples compounder and dividend aristocrat with a margin inflection ahead and the secular protein megatrend behind it:

Company Overview

• Founded in 1891 in Austin, Minnesota. A global branded food company with ~$12B in revenue across 80+ countries.
• Leading brands include SPAM, Skippy, Jennie-O, Planters, and Applegate, with #1 or #2 market share in 40+ retail categories.
• Protein-centric portfolio: 70%+ of sales derived from meat and protein-rich foods, directly aligned with the secular protein consumption trend.
• FY2026 YTD segment mix: Retail ~60% of sales, Foodservice ~34%, International ~6%.
• Stock down nearly 60% from 2022 highs (~$50/share) and trading at the lowest levels since 2015.
• Leadership transition complete: John Ghingo named Chief Executive Officer after serving as president, with interim CEO Jeff Ettinger remaining on the Board of Directors. Ash Bhumbla joins as Chief Financial Officer, succeeding interim CFO Paul Kuehneman.

Dividend Aristocrat

• Uninterrupted quarterly dividend payments since 1928 — 392 consecutive quarters and counting. 60 straight years of dividend increases with a 5-year CAGR of ~3.8%.
• Current yield of ~5.9%, close to highest on record, with a record $633M returned to shareholders via dividends in FY2025. Returned $161M via dividends in Q3 FY2026 alone.
• Payout ratio of 82%, backstopped by a strong balance sheet with $840M of cash on hand against ~$2.86B in total debt.

Commodity Costs & Temporary Headwinds

• Heavy perishable inputs (72% of FY2025 sales) drove major margin pressure: beef near record highs, pork bellies +30%, wholesale pork +~10%, and nuts elevated, resulting in a ~400 bps margin hit.
• Additional one-off headwinds in FY2025: avian flu disruptions in turkey and chicken, a ~5M lb chicken recall, and a Skippy facility fire.
• Relief is arriving but staggered: pork markets began declining partway through Q3 FY2026, with only a partial quarter of benefit recognized and the larger share expected to flow through in Q4 and into FY2027.
• Beef remains elevated, while freight, logistics, and fuel re-emerged as a Q3 headwind with fuel back at its highest level since the geopolitical conflict began.
• Two rounds of pricing actions implemented in summer and fall of 2025, fully in effect as of Q2 FY2026 with elasticities tracking in line with expectations.
• Q3 gross margin was 15.9% (-14 bps Y/Y), with year-to-date gross margin at 16.3% vs. 16.2% last year. Management believes the margin profile improves from here as lower input costs work through inventory.
• Targeted inventory rebalancing largely completed in Q3, with finished goods down significantly Y/Y in both dollars and pounds.

Protein Boom Driving Growth

• Directly aligned with secular health and wellness trends — GLP-1 households consume ~3x more protein than the average consumer.
• FY2025 organic sales +2%: Retail +1%, Foodservice +5%, International +1%.
• Q3 FY2026 organic sales turned negative (-1.7%) for the first time in over a year on portfolio-shaping actions, lower commodity-based pricing, and a strained consumer, with year-to-date organic sales still +1.0%.
• Q3 FY2026 segments: Retail -3.3% organic / -3.7% profit ($1.78B, ~60% of sales), Foodservice +1.8% organic / +2.7% profit ($1.00B, ~34% of sales, 12th straight quarter of organic growth), International -4.4% organic / adjusted segment profit flat ($179M, ~6% of sales).
• Foodservice carries an outsized share of the earnings: ~34% of sales but ~51% of total adjusted segment profit, continuing to outperform an industry facing soft traffic and macro pressure.
• Retail volume fell 9% in Q3, with roughly half tied to the whole bird turkey divestiture, the private label snack nut exit, and contract manufacturing. The balance came from expected pricing elasticity plus incremental softness in a choppy consumer environment.
• Priority brands still gaining traction: Jennie-O ground turkey and Hormel entrees posted mid- to high-single-digit consumption growth in Q3, with Applegate, Herdez, Black Label bacon, the SPAM family, Hormel chili, and Planters also growing.
• Planters returned to consumption growth on in-store activations, with marketing dollars shifting toward retailer media, e-commerce, and digital channels across the Retail portfolio.
• International refocusing on Asia Pacific: Brazil (Ceratti) divested.

Transform & Modernize

• Multi-year T&M initiative on track: supply chain optimization, footprint consolidation, automation, and 120+ projects contributing value.
• Delivered $75M in savings in FY2024 and reached the high end of the $100-150M target in FY2025.
• Reduced ~250 corporate and sales roles (~9% of the workforce) for additional savings.
• SG&A discipline showing through: adjusted SG&A fell 11.6% in Q3 FY2026 to 7.3% of net sales from 8.1%, the lowest dollar level since Q4 FY2023.
• New integrated business planning process is driving better visibility, faster decision-making, and tighter coordination across a recently centralized business.
• Path back to mid-cycle 10%+ operating margins, with Q3 FY2026 adjusted operating margin at 9.0% (+61 bps Y/Y) and year-to-date adjusted operating margin at 9.0% vs. 8.7% at the same point last year.

Key Financials & Valuation

• FY2025: net sales ~$12B, adjusted EPS $1.37, operating cash flow $845M, capex $311M (~2.6% of sales).
• Q3 FY2026: net sales $2.96B (-2.4% Y/Y), adjusted EPS $0.37 (+5.7%), adjusted operating income $266M (+4.7%), gross margin 15.9% (-14 bps Y/Y), operating cash flow $241M (+54%), capex $68M, free cash flow ~$173M.
• FY2026 guidance updated: net sales cut to $12.1–$12.2B (organic +1–2%, from +1–4%), adjusted operating income raised to $1.08–$1.12B (+6–10%), adjusted EPS raised and narrowed to $1.45–$1.51 (+6–10%). Segment profit growth is still expected from all three segments.
• Portfolio shaping continues: whole-bird turkey completed in Q2 and excluded from Y/Y comparisons beginning Q1 FY2027, with the Brazil divestiture closing early in Q4 FY2026 and excluded beginning Q4 FY2026. Private label snack nuts fully lapped by the end of FY2026 and Justin’s by mid-Q1 FY2027.
• $840M of cash on hand against ~$2.86B in total debt, with management explicitly signaling renewed openness to strategic M&A after several quiet years.
• Long-term targets of 2-3% annual organic sales growth and 5-7% operating income growth.
• Trading at ~12.9x forward earnings vs. a 20-year average of ~20x (lowest since GFC)
• Paid to wait: a ~5.9% yield on a 135-year-old protein compounder with a margin inflection underway, cost-savings runway, and the protein megatrend at its back.

Q3 Commentary

Hormel has had a lot on its plate over the past few years, but the ingredients for a recovery are finally coming together.

Despite a ~10% drop following third-quarter results, the underlying business looks much healthier than the headline numbers suggest. Net sales of $2.96B fell 2.4% Y/Y, with organic net sales down 1.7%, leading management to trim its full-year sales outlook to $12.1B to $12.2B from $12.2B to $12.5B and narrow organic growth to the low end of its prior range at 1% to 2%. The bottom line was far more encouraging, with adjusted EPS of $0.37, up 5.7% and ahead of expectations, allowing management to raise the low end of its adjusted EPS guidance to $1.45 to $1.51 from $1.43 to $1.51. Nearly all of the top-line pressure traces back to Retail, a segment that accounts for ~60% of sales and has spent the better part of three years in the penalty box, working through a reset that now appears to be nearing its end.

Retail’s weakness began in 2023, when organic sales fell 3%, followed by a 4.8% decline in 2024. The segment returned to 1.1% growth in 2025, only to run into steep input inflation and a strained consumer this year. Along the way, a string of one-off headwinds hit the business, as Planters worked through integration struggles before a plant shutdown in 2024, the turkey business contended with avian flu and a collapse in whole-bird turkey prices, and a fire at the SKIPPY facility added another setback last year. The result was a frustrating pattern of one step forward and two steps back, leaving investors impatient and throwing in the towel on the idea of a sustained recovery.

Management is now addressing that volatility head-on. Hormel is shedding lower-return, more commoditized businesses, including select private-label snack nuts and whole-bird turkey, a highly volatile business that drove much of the earnings swings in 2023 and 2024 while being significantly dilutive to Retail margins. Exiting those businesses shifts the segment’s focus toward higher-margin, value-added products. Those exits, together with intentionally lower contract manufacturing volume, accounted for about half of this quarter’s 9% decline in Retail volume, with most of the rest coming from expected elasticity following two rounds of price increases. Giving up that volume weighs on reported sales in the near term, but it leaves behind a higher-margin, more stable Retail business that we believe is now sitting at its trough.

Meanwhile, the brands Hormel is prioritizing continue to grow. Jennie-O ground turkey and Hormel entrees posted mid- to high-single-digit consumption growth, while Applegate, Herdez, Black Label bacon, SPAM, and Hormel chili also grew. Planters returned to consumption growth as well, a welcome sign for a brand that has been at the center of the Retail turnaround. With the exits lapping over the coming quarters, pricing fully reflected, and input costs easing, the pieces are in place for Retail to return to profitable growth while rebuilding segment margins from the mid-6% range today toward the high single digits the business has historically earned.

While Retail resets, Foodservice continues to do the heavy lifting, generating more than half of segment profit on about a third of company sales. Year-to-date margins of 15.2% are more than double Retail’s 6.8%, with organic sales up 5.2% against a 1.3% decline in Retail. The segment has now delivered 12 straight quarters of organic growth, led by premium prepared proteins and branded pepperoni, even as restaurant operators reported net declines in customer traffic in 17 of the last 18 months.

When the restaurant industry finally finds its way out of the gutter, Hormel’s steady share gains in a down market should provide an additional volume tailwind on top of the solid growth it is already generating. And restaurants are only part of the story, with exposure to hotels, schools, healthcare facilities, convenience stores, and entertainment venues providing a diversified base of demand across the cycle.

With high-margin Foodservice making up a bigger slice of the pie alongside a cleaned-up Retail business, there is a clear line of sight to margin expansion from today’s trough levels. Adjusted gross margin sat at just 15.7% in FY2025, its lowest level since 2008 and well below the high teens, and at times north of 20%, that the company earned historically.

Input costs also started to roll over during the quarter, with live cattle now ~15% off their June highs and lean hogs down ~24% from recent highs.

Only a partial benefit reached the P&L in Q3 as higher-cost inventory worked through, with most of the relief still to come in Q4 and FY2027. Further down the income statement, years of cost work are just starting to pay off, with adjusted SG&A falling to 7.3% of net sales from 8.1% a year ago, its lowest dollar level since Q4 FY2023. That puts FY2026 on track for Hormel’s first operating margin increase since FY2021, with guidance implying a 9.1% midpoint versus 8.4% last year and plenty of runway to work back toward a normalized 10% to 12% range.

Beyond the margin opportunity, Hormel has another tailwind working in its favor: the shift toward higher-protein diets.

Unlike consumer staples companies built around bread, sweets, and heavy carbs that are swimming against the current of where diets are heading, Hormel is on the right side of that trend. With ~72% of annual net sales coming from meat and poultry across brands like Jennie-O, SPAM, Applegate, and Columbus, Hormel is about as direct a protein play as there is in consumer staples, at a time when nearly half of U.S. adults say they want more protein in their diets. That share climbs to 65% among GLP-1 users, while the government’s new dietary guidelines raised recommended protein levels by more than 50%. Meanwhile, U.S. retail sales of protein-labeled foods are expected to reach $90.3B this year, more than double the ~$40B generated in 2017.

The market is giving Hormel very little credit for either its turnaround progress or the demand backdrop, with the stock sitting ~60% below its 2022 highs, a drawdown of a magnitude matched only once before in Hormel’s history, from 1968 to 1970. The stock is now trading at just ~12.9x forward earnings versus a 20-year average of ~19x, a depressed valuation only seen during the GFC and the dot-com bubble

The recent selloff has also pushed Hormel’s dividend yield to 5.9%, the highest in the company’s history. It is backed by 392 consecutive quarterly payments, 60 straight years of increases, a rock-solid balance sheet, and a management team that has made the dividend a clear priority.

Dividend payers have fallen out of favor in the near term as investors can lock in a 5.2% yield on the 10-year Treasury, but for reasons we’ve discussed in detail in recent weeks, we see the current spike in yields as temporary by nature. As yields come down, we expect out-of-favor dividend payers like Hormel to catch a bid as investors are forced to find yield elsewhere. Not to mention, investors locking in a 5.9% yield from Hormel today are getting a dividend that has grown ~3.8% annually over the past five years, with the massive equity upside of a recovering business on top.

And the pessimism extends well beyond Hormel, with the entire staples sector now making up just 4.5% of S&P 500 market cap, the lowest on record, while the ratio of staples to the S&P 500 sits at its lowest level since April 2000.

The last time the sector was this deeply out of favor, it went on to outperform the S&P 500 for three consecutive years as the tech bubble unwound. Yet you still can’t give the sector away, with fund managers a net 33% underweight, more than two standard deviations below normal and the largest underweight since January 2004.

It is the same pattern we see every time in the Wall Street fashion show, where nobody wants to own staples until they suddenly do, leaving today’s lopsided sentiment and positioning with a very low bar for a reversal.

We don’t think it will take much for Hormel to get back on the menu.

Q3 Earnings Breakdown

10 Key Points

1) Hormel reported net sales of $2.96B (-2.4% Y/Y), missing consensus expectations of ~$3.04B by ~$80M, with organic net sales of -1.7%, its first negative organic print in over a year. The decline was driven by portfolio-shaping actions, including the whole-bird turkey divestiture and private label snack nut exit, lower commodity-based pricing, and a pressured consumer. Adjusted diluted EPS of $0.37 (+5.7% Y/Y) beat consensus expectations of $0.35. Year-to-date, organic net sales are +1.0%, with adjusted EPS of $1.11 (+5.7% Y/Y).

2) Gross profit came in at $471.5M (-3.2% Y/Y), with gross margin declining 14 bps to 15.9%. Lower plant utilization from planned inventory rebalancing, softer volumes, elevated freight costs, and discrete turkey supply chain and weather-related headwinds weighed on the quarter. Pork deflation began partway through Q3, so only a partial benefit was recognized, with the larger share expected to flow through in Q4 and into FY2027 as higher-cost inventory works through. Beef remained elevated Y/Y. Year-to-date gross margin stands at 16.3%, up 7 bps from 16.2% at the same point last year.

3) Adjusted operating income of $266.2M (+4.7% Y/Y) came in ahead of the ~$263.0M consensus expectation, with adjusted operating margin expanding 61 bps to 9.0% from 8.4% a year ago, versus ~8.8% expected. Cost discipline drove the expansion, with adjusted SG&A falling 11.6% Y/Y to $216.9M, or 7.3% of net sales versus 8.1% last year, its lowest dollar level since Q4 FY2023. Lower employee-related expenses reflect the corporate restructuring actions now fully taking hold, while advertising came in at $34M versus $41M last year due to timing, with management planning a step-up in Q4. Year-to-date adjusted operating margin sits at 9.0%, up from 8.7% at the same point last year.

4) The Retail segment (60.1% of net sales, 41.9% of adjusted segment profit) posted net sales of $1.78B (-4.3% Y/Y), with organic net sales of -3.3%, organic volume of -8.6%, and segment profit of $118.1M (-3.7% Y/Y). Segment profit margin was 6.6%, up 4 bps Y/Y. About half of the volume decline stemmed from the whole-bird turkey divestiture and private label snack nut exit, with the remainder tied to expected elasticity from the two rounds of pricing and incremental softness. Total Hormel dollar consumption was -1% for the quarter versus ~+1% earlier in the year, though priority brands continued to gain traction. Jennie-O ground turkey and Hormel entrees posted mid- to high-single-digit consumption growth, while Applegate, the SPAM family, Hormel chili, Herdez, Black Label bacon, and Planters also grew. Planters benefited from in-store activations, with marketing dollars across Retail continuing to shift toward retailer media, e-commerce, and digital channels.

5) The Foodservice segment (33.9% of net sales, 51.3% of adjusted segment profit) posted net sales of $1.00B (+1.6% Y/Y), with organic net sales of +1.8%, marking its 12th consecutive quarter of organic growth. Segment profit grew 2.7% to $144.5M, with margin expanding 15 bps to 14.4%. Growth was broad-based across channels, customers, and product platforms, led by premium prepared proteins, branded pepperoni, and Jennie-O turkey, with Austin Blues, Hormel Natural Choice, and Hormel Fire Braised also delivering strong net sales results. The segment outperformed industry trends despite muted away-from-home traffic, while lower commodity-based pricing suppressed net sales across portions of the portfolio.

6) The International segment (6.0% of net sales, 6.7% of adjusted segment profit) posted net sales of $178.7M (-4.7% Y/Y), with organic net sales of -4.4%. Adjusted segment profit was essentially flat at $19.0M (+0.2% Y/Y), with margin expanding 52 bps to 10.6%. Branded export demand remained resilient, though a one-time legal-entity transition delayed recognition of certain SPAM export sales, accounting for the majority of the volume decline. Hormel also divested its Brazil operations, which closed early in Q4, to sharpen its focus on Asia Pacific, where the Group VP of International has relocated to Singapore.

7) Operating cash flow came in at $240.6M (+53.5% Y/Y), driven by improved inventory management and working capital. After $68.2M of capex versus $72.2M last year, free cash flow was ~$172.4M, more than double the ~$84.5M generated a year ago. Year-to-date, operating cash flow totals $768.8M (+47.2% Y/Y), with capex essentially flat at $219.3M, bringing year-to-date free cash flow to ~$549.4M (+81.4% Y/Y).

8) Cash on hand totaled $839.6M, up $169.0M since fiscal year-end, against total debt of ~$2.86B. Inventories stood at $1.8B, up $54.3M since fiscal year-end due to operating supplies and work-in-process, while finished goods were flat sequentially and down significantly Y/Y in both dollars and pounds. The majority of the inventory rebalancing was completed in Q3, with a modest remainder expected in Q4. Management noted that the balance sheet provides flexibility to continue investing in the business, with the company open to strategic partnerships and acquisitions following several quieter years on the M&A front.

9) Hormel returned $161.0M to shareholders through dividends during the quarter, marking its 392nd consecutive quarterly dividend payment and maintaining its Dividend Aristocrat status, supported by 60 consecutive years of dividend increases. The quarterly dividend of $0.2925 per share ($1.17 annualized) is up 0.9% from $0.29 a year ago. Year-to-date dividends paid total $481.4M versus $473.7M last year, covered ~1.1x by year-to-date free cash flow of ~$549.4M. The current annual dividend yield stands at ~5.9%, with management reiterating that the dividend remains a priority.

10) Management cut FY2026 net sales guidance to $12.1B-$12.2B from $12.2B-$12.5B, with the midpoint of $12.15B versus consensus of $12.24B. Organic growth guidance was narrowed to +1% to +2% from +1% to +4%. Adjusted operating income guidance was raised to $1.08B-$1.12B from $1.06B-$1.12B, representing +6% to +10% growth, while adjusted diluted EPS guidance was raised and narrowed to $1.45-$1.51 from $1.43-$1.51, also representing +6% to +10% growth. Segment profit growth is still expected from all three segments, with full-year advertising expected to be comparable to the prior year, implying stepped-up brand support in Q4, and capex of $260M-$290M.

Earnings Call Highlights

Morningstar Analyst Note

Diageo Update

For newer readers, here’s a brief overview of the key drivers behind our thesis on Diageo, the world’s largest premium spirits company priced as if nobody will ever sip alcohol again as the market mistakes a cyclical hangover for permanent impairment:

Company Overview

• Global leader in premium spirits and beer — the largest international spirits player by retail sales value at 1.8x the nearest competitor
• Formed in 1997 through the merger of Grand Metropolitan and Guinness; headquartered in London, selling in nearly 180 countries
• Portfolio of 200+ brands including 13 billion-dollar brands: Johnnie Walker, Guinness, Smirnoff, Don Julio, Crown Royal, Captain Morgan, Tanqueray, Baileys, and Casamigos
• #1 global share position in scotch, tequila, vodka, gin, liqueur, and non-alcoholic spirits — Johnnie Walker 1.3x the #2 scotch, Don Julio 1.7x the #2 tequila
• Mix: ~75% spirits, 18% beer, 4% RTD; 62% premium or higher; 61% developed markets, 39% emerging
• Top categories: 24% Scotch, 12% tequila, 8% vodka, 6% canadian whiskey, 5% rum
• Regional split FY2026: North America ~37% of net sales (largest market), Europe ~26%, Asia Pacific ~17%, Latin America/Caribbean ~11%, Africa ~8%
• ~$19.6B in reported net sales FY2026 (~$20.2B FY2025)
• Shares down ~56% from 2022 highs and trading at 15-year lows at ~12.8x forward earnings (GFC-level cheap)
• Cyclical downturn in the context of a long-term secular premiumization uptrend — buying straw hats in the winter

Management

• New CEO Dave Lewis (effective January 1, 2026) — proven turnaround specialist and consumer goods veteran with 27 years at Unilever, known as “Drastic Dave” for his rigorous cost discipline
• Former Tesco Group CEO (2014–2020): took over with the UK chain in crisis and transformed it post-accounting scandal by cutting prices, slashing the workforce, selling non-core international businesses, and removing management layers — leaving Tesco with structurally higher margins than several UK grocery peers
• Named WPP finance chief Joanne Wilson as CFO, replacing Nik Jhangiani just over two years after he took up the role. Wilson joins the Board and Executive Committee some time in 2027, with Jhangiani remaining in the role during the transition to ensure a smooth handover
• Worked with CEO Dave Lewis at Tesco, with prior roles at Britvic, dunnhumby and KPMG
• Latest move in Lewis’s top-team overhaul following the August capital markets day
• Named John O’Keeffe (one of Diageo’s most experienced spirits executives) as North America President and CEO, replacing Sally Grimes who departed with immediate effect. Previously Diageo’s President of Asia Pacific and Global Travel Retail.
• Catalyst for a full operational reset and a safe pair of hands to lead the turnaround

Cost Savings Program

• Accelerate program (launched 2025): three-year productivity initiative with a savings target raised to ~$625M, up from the original $500M. Over-delivered its guide with ~$540M of savings secured in FY26 (~85% of the program), split ~$230M A&P/trade, ~$180M supply chain, ~$130M overheads.
• ~50% of savings reinvested in brands, marketing, and growth; the remaining ~50% drops to the bottom line, driving positive operating leverage
• New two-year ~$1.2B restructuring announced at CMD (~$1.1B operating framework, ~$0.1B supply chain) targeting ~$1B of annual savings (~$850M framework, ~$150M supply chain), with ~40% of savings landing in FY27 and a further ~55% in FY28; ~70% of the restructuring cost already incurred
• ~$514M of severance costs implies roughly 3,000–5,000 job cuts from a ~30,000-person workforce
• Overheads targeted down to ~10.5% of net sales over two years (from ~14%); A&P spend to ~16% of sales (from 18.1% in FY25), the level management views as optimal brand support
• Explicitly no profit rebase — the outcome most feared. Savings fund the turnaround without resetting operating profit; gross margin held above 60% through FY29 with gross profit dollars growing, operating margin expanding, and mid-single-digit organic operating profit growth
• Capex declined from ~$1.5B in FY2025 to ~$1.2B in FY2026 (mid-single-digit % of sales), held at ~$1.25B annually through FY29, with spend focused on Guinness capacity expansion
• Industry-leading EBIT margins at ~28.9% in FY2026, up ~116bps organically, recovering off the FY25 low of ~28.3% (lowest since FY2015)
• Low-hanging fruit: Lewis highlighted that Diageo is paying 10x more to run payroll for ~30,000 employees than Tesco did despite having 15x the headcount, and that ~65% of customer orders are still being entered manually

Deleveraging Through Asset Sales

• Net debt of ~$20.5B with leverage at 3.1x adjusted EBITDA, down ~0.3x Y/Y
• Recent asset sales: ~$2.3B from Kenyan drinks businesses sold to Asahi; $1.8B sale of the Royal Challengers Bengaluru cricket stake (announced March 2026, progressing as planned, ~0.1x de-lever); disposal of remaining EABL shareholding (~0.25x de-lever) expected to complete in calendar H2 2026
• Management has been explicit: no fire sales and nothing sold below fair value
• Target: leverage back to the 2.5–3.0x range, tracking to ~2.75x in FY27 (including EABL and RCB) and ~2.0x by FY29, improving flexibility for dividends, buybacks, and growth investment
• Not buyers or sellers of scale — Lewis framed this as an organic turnaround with the assets already in hand

Return to Growth

• FY26 reported net sales $19.6B (-3.0% Y/Y). Organic -2.0% (volume -0.4%, price/mix -1.6%), ex-CWS ~-0.5%. Q4 organic -2.2%, a step down from Q3’s +0.3%. Growth in three of five regions.
• FY26 by region: North America -8.4% with US Spirits -11.5% and tequila -21.1%, RTDs/cocktails +35.1% (Casamigos RTS World Cup launch). Europe +3.4% on double-digit Guinness in GB. APAC -6.3% (~+1.5% ex-CWS). LAC +7.7%. Africa +13.3%.
• FY2027 guided to broadly flat organic net sales.
• Medium-term framework: low-single-digit organic net sales CAGR through FY29, exiting FY29 at ~2.5–3% top-line growth even with North America only back to flat. Rest of world growing ~3–5%; North America improving from a mid-single-digit decline in FY27 to flat by FY29 against a global market growing 1–3% in value.
• North America underperformance is largely self-inflicted and fixable: over-exposed to premium, under-exposed to high-growth RTDs and small formats, and an operating model that is complex and slow. Share declines across ~65% of NAM net sales value.
• Three core brands in long-term decline being fixed — Crown Royal (#2 US brand), Smirnoff (losing share for eight years, packaging missteps now being undone), and Captain Morgan (leaning into “+ Cola” and RTD serves). Fixes centered on packaging, smaller formats, and quality.
• Selective price repositioning on Casamigos already underway, with early results described as positive — same playbook Lewis ran at Tesco to claw back share
• Scaling small formats: expanded Smirnoff capacity to accelerate distribution; targeted 50ml innovation for Don Julio
• Non-alc segment +40% Y/Y, leading the market at 4x the nearest competitor; global tequila portfolio +18% in FY25 with #1 share position
• Significantly underrepresented in the mass market — Lewis exploring price repositioning, new proposition spaces, and RTDs to broaden the portfolio beyond the prior premiumization-only focus
• Official Spirits Supporter of the FIFA World Cup 2026 in the Americas — the first time spirits producers have ever sponsored the tournament (largest World Cup in history)
• The Casamigos activation turned a three-year share decline into share gains of total spirits over the following weeks.

Guinness and RTDs — the Two Strategic Battlegrounds

• Guinness: +12% organic net sales in FY26, a 13% NSV CAGR over five years against ~5% for premium beer, in a $135B market where premium is the fastest-growing segment. 14 consecutive quarters of share growth in North America.
• Economics justify the capital: 60%+ gross margin and ~30% ROIC, roughly twice the group
• Investing just under $1B of capex over FY26–FY30 to lift capacity more than 50% by FY29, with potential for more; ambition is a top-10 US premium beer position and ~150,000 new on- and off-trade accounts by FY30
• RTDs: #2 player globally with ~8% market share, global RTD net sales +10% in FY26 and +15% organic, in a $47B category forecast to grow 4–6% over three years
• Underinvested since Smirnoff Ice dominated the early 2000s while the category grew from ~5% to ~15% of the market; RTDs are only ~14% of North American volume, leaving significant runway
• Lewis plans canned cocktails across every core spirits brand. Smirnoff Ice is nearly a $0.5B US brand growing 6% with +13bps share; Ketel One Cocktail Collection +58%; Casamigos Margarita new with +14bps share. #1 RTD player in LAC.
• RTDs deliver ~3x the profit per serve of spirits and recruit new drinkers — Casamigos RTD buyers are 5x more likely to buy the tequila

Drinking Less but Better

• Consumers are drinking less overall but steadily shifting toward premium and higher-quality brands
• Current headwinds are cyclical, not structural — spirits remain an affordable luxury category and the premiumization trend is intact
• The category is working through three distinct cycles: a long premiumization supercycle, a Covid acceleration and pull-forward, and an affordability-driven consumer reset. North America grew 20% organic in FY21 and 14% in FY22 against a typical low-single-digit range — distorting today’s picture rather than signaling a permanent retreat from alcohol.
• US spirits volume is highly correlated with consumer sentiment, which sits near record lows
• The Gen Z narrative is false: 74% of Gen Z report drinking in the past six months, up from 66% three years ago and in line with the 76% adult average. They drink less by volume but trade up when they do.
• GLP-1 impact modest — users spend just 2% less on spirits (vs 4% beer, 5% wine), and 85% discontinue within two years; penetration is 10–12% today, rising to 20–25% by 2029
• The biggest macro headwind remains disposable income; cyclical, not structural
• Long-term secular tailwind: the “drinking less but better” dynamic supports sustained price/mix growth across the portfolio
• Demographic tailwind: mid/older households spend more on spirits

Key Financials + Valuation

• Dividend held at a floor of $0.50/share (vs. $1.03 in FY2025); 30% payout in FY26 under the new 30–50% payout policy, with capital allocation pivoting to deleveraging and reinvestment. As leverage falls, the board can revisit dividend increases and buybacks.
• FY26 FCF of $3.2B, +$463M / +16.8% Y/Y from $2.75B, ahead of the $3.0B guide.
• Capex of ~$1.2B in FY26 (vs $1.5B in FY25), with spend focused on Guinness capacity expansion
• Valuation: ~12x forward earnings against a 25-year average of 18x and the ~30x peak at the early-2022 high; troughed at 11x in March, more than two standard deviations below average and a level only reached during the GFC
• Trades at 0.6x relative to the S&P 500 against a long-term ~1.1x premium — near record-low relative valuation
• 13.4% ROIC in FY2026 (13.7% FY2025), consistent mid-teens historically
• FY27 outlook: organic net sales broadly flat (NAM ~-mid-single-digit on an assumed ~3% US market decline plus share gains), organic operating profit low-to-mid-single-digit growth, FCF ~$2B after ~$850M exceptional restructuring cash costs.
• Medium-term through FY29: low-single-digit organic net sales growth, mid-single-digit organic operating profit growth, ~$8B cumulative FCF after exceptional cash costs.
• Of the ~$3.75B of invested capital going in over the next three years, just under $1B goes to Guinness with the rest supporting growth
• Shares outstanding down 11.6%+ over the past 10 years via consistent buybacks
• Paid to wait: high-quality compounder trading at trough multiples — the market is pricing this as if people will never sip alcohol again

Q4 Commentary

Much like Hormel, Diageo is another one of our preferred names offering exposure to the left-for-dead staples sector. The world’s largest spirits company closed out FY26 with organic net sales down 2.0%, landing at the favorable end of its -2% to -3% guide. Three of five regions posted growth, led by Africa (+13.3%), Latin America (+7.7%) and Europe (+3.4%), leaving North America (-8.4%) and Asia Pacific (-6.3%) as the lone drags. Excluding Chinese white spirits, where the decline stems from a shift in Chinese government policy, APAC actually grew 1.5%, making North America the only real weak spot within management’s control.

Cost savings did the heavy lifting on profitability, with organic operating profit up 2.0% (its first increase since 2023) on an industry-leading 28.9% operating margin, while free cash flow climbed ~17% Y/Y to $3.2B. Solid as the numbers were, they took a back seat to the long-awaited Capital Markets Day, where Dave Lewis, three quarters into a tenure that began in January, finally laid out the full turnaround plan he previewed during his kitchen-sink first half.

The biggest fear heading into the event was that Lewis’s Tesco playbook would require a price reset at the expense of profits. That fear never materialized, with a two-year ~$1.2B restructuring, ~70% of which was already booked in FY26, set to deliver ~$1B of savings, weighted ~40% to FY27 and ~55% to FY28. Those savings will fund reinvestment in competitiveness, a word nearly everyone but Lewis read as code for price cuts. Instead, the plan centers on small packs, better packaging and quality fixes, all while gross margins hold >60% and organic operating profit compounds at a mid-single-digit rate through FY29, both ahead of consensus expectations.

Overheads are set to fall from north of 14% of sales to 10.5%, which would place Diageo in the top quartile of its peer set, while A&P spend settles at ~16% of sales, down from 18.1% in FY25. “Drastic Dave” has already made his mark, with headcount down 6.4% Y/Y to 27,938 (~2,000 roles) and analysts expecting 3,000 to 5,000 roles to go in total.

Layer in the ~$540M delivered by the Accelerate program, and Diageo is already back to accelerating profit growth, even with FY27 sales expected to be broadly flat.

A leaner cost base only matters if the top line eventually follows, which brings us to North America, the company’s biggest problem child. At nearly 40% of sales, the region is the engine of the business and the key to the turnaround. While the rest of the world compounds at low-single-digit rates or better (ex-CWS), North America fell 8.4% organically in FY26, dragged down by an 11.5% decline in U.S. spirits. To understand why the market has priced this as permanent impairment, it helps to separate the problem into two layers.

The first layer is the industry backdrop, which is cyclical rather than structural. The Covid boom pulled years of demand forward, with North America growing 20.2% organically in FY21 and 14.5% in FY22 versus a typical low-single-digit range.

The hangover from that acceleration has simply taken longer to normalize than investors or companies expected, weighed down by income growth that has trailed inflation for four straight years. At the end of the day, spirits are a discretionary purchase, especially the premium-and-above brands that make up ~62% of Diageo’s portfolio. That is why Diageo’s 25 years of data show U.S. spirits volume moving closely with consumer sentiment, which currently sits in the first percentile of its historical range at record lows. 

Two overhangs have convinced the market that this cycle is different: GLP-1s and a supposedly sober Gen Z. Both are overblown. GLP-1 users spend just 2% less on spirits than non-users, a one-time level effect rather than a compounding one, while 85% of users discontinue within two years.

As for Gen Z, 74% report drinking in the past six months, up from 66% three years ago and in line with the 76% adult average. They are drinking less but drinking better, which is precisely the consumer Diageo’s portfolio was built to serve.

The second layer is Diageo’s own execution, where the diagnosis is less flattering but far more encouraging. By Lewis’s own admission, North America had been underperforming for quite a while, with the tequila boom masking much of it. Over the last twelve months, U.S. spirits industry sales declined 2.0% while Diageo’s fell 6.9%, a gap that widened to 1.4% versus 7.0% over the last three months, with share slipping across ~65% of the U.S. portfolio. Lewis’s first major move was installing John O’Keeffe, one of Diageo’s most experienced spirits executives, as head of North America. After his first 100 days, O’Keeffe laid out the problems clearly: the business was over-exposed to premium, under-exposed to RTDs and small formats, and slowed by an organization that ran spirits and beer as separate divisions, while core brands like Crown Royal, Smirnoff and Captain Morgan had been losing ground for years.

The fixes are straightforward, centered on packaging, quality, formats and a single commercial organization. The good news is that these are all self-inflicted problems, giving Diageo plenty of self-help levers to pull rather than banking on a cyclical recovery to bail the business out. Casamigos offers an early proof point, as a 10-15% price repositioning that stopped it from fighting Don Julio for the same top-shelf consumer, paired with a FIFA World Cup activation, flipped a three-year share decline into share gains within weeks.

Management expects North America to move from stemming share losses in FY27 (mid-single-digit decline) to holding share in FY28 (low-single-digit decline) to winning share by FY29 (flat). The plan assumes a U.S. market that shrinks ~3% in FY27 before improving only slowly from there, a conservative assumption relative to industry peers’ forecasts. Any rebound in industry volumes would therefore be pure upside to a plan already built to work without it.

Beyond fixing North America, Lewis has narrowed Diageo’s focus to two key growth drivers. The first is Guinness, which continues to grow like a weed, up 12% in FY26 and compounding at 13% annually over five years versus ~5% for premium beer, alongside 14 straight quarters of share gains in North America. It does so with a >60% gross margin and ~30% ROIC, more than twice the group average. For Guinness, the constraint has never been demand but capacity, which is why just under $1B of capex will lift production by more than 50% by FY29 and nearly double it by FY31, creating a long runway for growth across both core and new markets.

The second growth driver is ready-to-drink cocktails, one of the few categories that has continued growing through the broader alcohol downturn. U.S. RTD servings have compounded at 13% annually since 2016 versus 1% for spirits, rising from ~5% to ~14% of North American volume. Diageo is already the #2 player globally, with RTD sales up 15% organically in FY26 and 35.1% in North America. Yet the category represents just ~4% of total sales after prior management largely abandoned it in favor of premiumization at all costs, fearing margin dilution. Those fears overlooked the economics, with RTDs generating ~3x the profit per serve of spirits while also serving as a recruiting tool, with Casamigos RTD buyers 5x more likely to go on to buy the tequila. Lewis plans to roll out canned cocktails across every core spirits brand, leveraging names consumers already know rather than chasing the latest flavor of the day.

All of this is backstopped by a healing balance sheet and a free cash flow inflection. FY26 free cash flow of $3.2B was the highest since 2022, helped by capex falling to $1.2B from $1.5B. Management expects cumulative FCF of ~$8B through FY29, which, along with proceeds from the EABL and RCB disposals, should bring leverage from 3.1x to the midpoint of the 2.5x-3.0x target range in FY27, a year earlier than previously anticipated, with a path toward 2x by FY29 absent any action. That leaves the Board with what CFO Nik Jhangiani called a “nice problem” of deciding between buybacks and a higher dividend, with management clear that this is an organic turnaround and there is no appetite for M&A.

The only thing that has changed since the August 6 Capital Markets Day is the appointment of Joanne Wilson as Jhangiani’s successor sometime in 2027, with Jhangiani remaining in place through the handover.

While the announcement was unexpected and removes a strong CFO who was once seen as a front-runner for the top job, it is more likely than not just the latest piece of Lewis’s executive team rebuild. Wilson spent a decade at Tesco alongside Lewis, including her final two years as head of M&A, and brings prior drinks experience from Britvic. With the financial framework already laid out, Wilson now steps in to lead the execution phase alongside a CEO she already knows how to work with.

Even after a self-help turnaround plan that cleared the bar without the dreaded profit reset, none of this has found its way into the share price. Diageo remains down nearly 60% from its 2022 high, only the third 50%+ drawdown in its history after the dot-com bubble in 2000 and the GFC.

The stock trades at 12.6x forward earnings against a 25-year average of ~18x and a ~30x peak in early 2022, while its 0.6x relative multiple to the S&P 500 sits near record lows against a long-term premium of ~1.1x.

The market is pricing a cyclical hangover as permanent impairment in one of the highest-quality names in global spirits, now led by a proven operator with a fully funded plan. At these levels, we don’t expect Diageo to remain on the rocks for much longer.

Capital Markets Day Financial Framework

Click here to view the full Capital Markets Day presentation

Q4 & FY26 Earnings Breakdown

Earnings Call Highlights

Morningstar Analyst Note

General Market

The CNN “Fear and Greed Index” ticked down to 32 this week from 35 last week. You can learn how this indicator is calculated and how it works here: (Video Explanation)

The NAAIM (National Association of Active Investment Managers Index) (Video Explanation) ticked up to 88.12% equity exposure this week from 71.92% last week.

Our podcast|videocast will be out sometime today. We have a lot of great data to cover this week.  Each week, we have a segment called “Ask Me Anything (AMA)” where we answer questions sent in by our audience. If you have a question for this week’s episode, please send it in at the contact form here.

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To see if you qualify and to take advantage of this opening click here, or go to GreatHillCapital.com for more details.

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The column under the date 9/29/2026 has a letter that represents the movement in 2026 earnings estimates since the most recent print (7/31/2026). “U” means 2026 estimates are UP in the last 60 days. “D” means 2026 estimates are DOWN in the last 60 days. “S” means 2026 estimates have remained the SAME in the last 60 days. The column entitled “1yr Target Est” is the Wall Street consensus 12 month price target for each stock.

What this table is telling us is that estimates are UP. More estimates went UP for 2026 in the past 60 days than came DOWN – the Up:Down ratio was 20:9. The rest remained the same.

The cumulative 2026 earnings power of these 30 stocks was revised UP by +2.67% in the past 60 days. 2027 estimates are UP +3.94%.

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The column under the date 9/29/2026 has a letter that represents the movement in 2026 earnings estimates since the most recent print (7/31/2026). “U” means 2026 estimates are UP in the last 60 days. “D” means 2026 estimates are DOWN in the last 60 days. “S” means 2026 estimates have remained the SAME in the last 60 days. The column entitled “1yr Target Est” is the Wall Street consensus 12 month price target for each stock.

What this table is telling us is that estimates are UP. More estimates went UP for 2026 in the past 60 days than came DOWN – the Up:Down ratio was 17:7. The rest remained the same.

The cumulative 2026 earnings power of these 30 stocks was revised UP by +8.73% in the past 60 days. 2027 estimates are UP +5.35%.

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S&P 1500 Advance Decline %

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Watch in HD Directly on Fox Business

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Thanks to Johann Cherian and Tharuniyaa Lakshmi for including me in their article on Reuters. You can find it here:

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S&P 100 High Low Index

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